Liz Truss will become the next UK Prime Minister

By Suzanne Evans, Director, Political Insight

Liz Truss will become the next UK Prime Minister and begin to form a government today. She will be the third female PM and only the third to come from a non-selective comprehensive school background. In her acceptance speech yesterday she reiterated her promise to "deliver a bold plan" to cut taxes and grow the economy; sort the energy crisis; and deal with “the long term issues we have on energy supply". She said Conservative beliefs in freedom, low taxes, and personal responsibility "resonate with the British people". "During this leadership campaign, I campaigned as a conservative and I will govern as a conservative," she said.

Please read Political Insight’s view of Liz Truss’s election at https://www.politicalinsightuk.com/liz-truss-the-political-insight-view/
 
Liz Truss immediately faced a barrage of calls from British firms to deliver support for businesses as the threat of recession looms. A roundup by Yahoo Finance UK includes:

• British Chamber of Commerce chair, Sarah Howard, who said: “She must now take immediate steps to support the economy. The last few months have been difficult for everyone, time is running out and urgent action is needed to deal with the costs’ crisis. Like households, firms have been telling us of unsustainable rises in their energy bills and how difficult it is to find new fixed term contracts to buffer against further price hikes. Unless the new prime minister addresses these problems head-on then the economy will drift further into dangerous waters and the outlook for both businesses and consumers will be bleak indeed”. The trade body is asking for regulator Ofgem to be given more power to strengthen regulation of the energy market for businesses and a temporary cut in VAT to 5% to reduce energy costs for firms, among other measures. “The plan is not just about ensuring support for businesses. It is also about protecting jobs, securing livelihoods, and creating a vibrant and prosperous society,” Howard added. 
• Melanie Leech, chief executive at the British Property Federation, said the UK “urgently needs strong government leadership after a period of drift”. “The new prime minister must address the immediate cost pressures facing businesses and families, but in parallel there must a clear focus on the longer-term objectives to tackle inequalities across the UK and transition to a greener, high-productivity economy,” Leech said. 
• Tony Danker, CBI director general, said Truss must support UK households and firms. “Most immediately, support for struggling households and firms in jeopardy is top of the in-tray. This may not be the pandemic, but the exceptional circumstances we now face mean government must play a central role in supporting our economy…And if we’re serious about getting the UK growing again, ensuring any slowdown is short and shallow, we need a serious plan for growth. It needs to be bold, unconventional and rooted in the very real opportunities that still exist for the UK to thrive” he said. 
• Kate Nicholls, chief executive of UKHospitality, also called for Truss to act "quickly and decisively". “The new government must act quickly and decisively to address the soaring energy bills that are facing consumers and businesses,” she said. “With the right package of support — including a reduction in the headline rate of VAT for the sector to 12.5%, a business rates holiday, the deferral of all environmental levies, the reinstatement of a HMRC Time to Pay scheme and the reintroduction of a trade credit insurance scheme for energy — the sector will be well placed to aid growth through generating jobs and local investment,” she added. 
• AJ Bell investment director Russ Mould warned that the gilt and currency markets could be the first real test for the new prime minister. “Financial markets express their faith — or lack of it — in a country and its economic and political prospects through how much they charge it to borrow and how they value its currency. In each case traders and investors are already turning away, presumably because they do not like what they see. If Liz Truss can put an end to the sell-off in both the UK government bond market and sterling that would be a major coup, although the odds do seem to be stacked against them, as they juggle 40-year high inflation, the threat of a recession, an energy crisis, war in Ukraine, the weak pound, rising interest rates and the government’s own state of penury”. 
• The Trades Union Congress (TUC) called on Liz Truss to “come clean” over her plans for workers’ rights. “Liz Truss' number one priority should be to help families pay their bills this winter,” TUC general secretary Frances O’Grady said.

 
The euro dropped below 99 US cents for the first time in 20 years yesterday after Russia said gas supply down its main pipeline to Europe would stay shut indefinitely. The euro has been increasingly correlated with natural gas prices in recent months, with the former falling when prices of the energy source rise, Reuters says. Russia’s move to scrap a Saturday deadline for reopening the pipeline, citing an oil leak in a turbine, coincided with the G7 finance ministers’ announcement of a price cap on Russian oil. Gas prices on the continent soared as much as 35% in the past 24 hours, however the UK Natural Gas price is back to within 5% of Fridays lower close.
 
Andrew Neil tweets this morning: “JP Morgan – which moved billions of dollars of assets from London to Frankfurt in the wake of the Brexit vote – has drawn up plans to shift work from its offices in Germany to the City of London as it braces for potential blackouts.”
 
The eurozone is almost certainly entering a recession, a Reuters poll of economists suggested yesterday, amid a deepening cost of living crisis and a gloomy outlook that is keeping consumers wary of spending. The European Central Bank (ECB) is under pressure as inflation is running at more than four times its 2% target, reaching a record 9.1% last month, the news agency says. Its poll revealed that half of those surveyed said they expect an unprecedented 75 basis-point rate hike from the ECB this week, while almost as many forecast a 50 bps hike.
 
The Organisation of Petroleum Exporting Countries and its allies (OPEC+) agreed a token supply cut of 100,000 barrels a day yesterday to lift falling oil prices. The Brent Crude global benchmark rose 3.7% to $94.46 a barrel (£82.06), while US light crude jumped 3.5% to $89.89. The move takes supplies back to August levels, and reverses the September increase of the same amount agreed last month when US president Joe Biden visited Saudi Arabia, Yahoo Finance says. OPEC+, of which Russia is also a member, are trying to stabilise the oil market which has been contending with a slowing global economy, the war in Ukraine, and the persistent COVID lockdowns in China. British oil giants Shell and BP were consequentially among the top risers on the FTSE 100 yesterday. Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says Liz Truss's win has boosted energy giants. “Her expressed distaste for a further windfall tax on the oil and gas sector will have added to the strength of energy giants today, which had already been boosted by the ratcheting higher of gas prices and the march back upwards of crude prices over supply constraints," she said.
 
UK retail sales fell in August as the rising cost of living put a further squeeze on incomes and forced consumers to reign in their spending, the British Retail Consortium (BRC) and KPMG say. Their data analysis found total sales increased by 1% last month, compared to a 3% rise in August 2021. While food sales jumped by 3.8% in the quarter to August, non-food sales decreased by 2%, which BRC CEO Helen Dickinson says "represents a significant drop in sales volumes". Don Williams, retail partner at KPMG, added: "Worryingly, August data revealed a significant fall in clothing sales — the category which has been the most robust performer this year which could signal the start of shoppers pulling back from non-essential spending”.
 
The private sector also shrank in August. The S&P Global Services/CIPS purchasing managers index (PMI) for services and manufacturing dropped to 49.6 in August, down from 52.1 in July this marks the first fall below 50 — the threshold between contraction and expansion — since January last year, when firms were suffering from continuous COVID lockdowns. According to the survey, demand for consumer-facing services such as restaurants, hotels, travel, and other recreational activities is "collapsing", as the cost of living crisis drives consumers to reign in spending.
 
68,858 new vehicles joined British roads in August, ending five months of decline in the new car market. For the first time since February, the market grew, by 1.2%, according to figures from the Society of Motor Manufacturers and Traders (SMMT).  However, supply chain pressures continue to constrain the market and new car sales are still 35.3% down on the same period in the pre-pandemic year of 2019.
 
Share in Aston Martin plunged over 14% yesterday after the loss-making luxury carmaker announced a heavily discounted £576m rights issue to help pay down debt and invest in new models. Around 45% of the four-for-one rights issue is backed by Saudi Arabia’s Public Investment Fund (PIF) sovereign wealth fund, a major investor in Aston Martin along with Mercedes-Benz and owner Lawrence Stroll’s Yew Tree consortium. Russ Mould, investment director at AJ Bell, said: "For what’s meant to be a premium brand, Aston Martin is behaving like a desperate start-up company, going cap in hand once again to shareholders asking for more money. Its offering of shares at a 78.5% discount to last Friday’s closing price shows how desperate it is to secure new funds”.

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