Kwasi Kwarteng sacked: UK to get fourth chancellor in four months

It’s been a busy, chaotic and controversial 38 days in the job for the now ex-chancellor, leaving the prime minister with a hugely important appointment to make.

HMS Britain has lost another lieutenant as it awaits its fourth chancellor in four months (now confirmed as former health secretary and foreign secretary Jeremy Hunt). The captain of the ship is looking wobbly too as she puts on her lifejacket and hopes to steady her ship soon.

In a shock turn of events, Prime Minister Liz Truss is attempting to restore credibility in her administration by firing the Chancellor of the Exchequer Kwasi Kwarteng amid the market mayhem that has played out since the announcement of his ill-fated mini-budget, forcing emergency intervention from the Bank of England. 

• Read about: Free regular investing | Opening a Stocks & Shares ISA | Cashback Offers

The government has carried out a series of embarrassing U-turns, bringing forward the date of Kwarteng’s medium-term fiscal plan, abandoning plans to scrap the top 45% rate of income tax, and now there are expectations that the government will also U-turn on plans to scrap the increase in corporation tax next April from 19% to 25%. 

Following the ousting of the chancellor, there is now speculation that a group of senior Conservatives could call on Liz Truss to resign next week.

By letting Kwarteng go, Truss hopes that she can draw a line under the gilt market madness and the plunge in the pound, reinstate investor confidence and prove to the electorate that she is focused on fiscal discipline, rather than unfunded tax cuts.

The Monetary Policy Committee (MPC) at the Bank of England has been laser focused on trying to bring inflation back down towards its 2% target. The chancellor’s mini-budget entirely conflicted with the central bank’s policy by stimulating economic activity with tax cuts, borrowing and spending that would bring about inflationary side-effects. The tug-of-war between fiscal and monetary policy is what spurred the bond market sell-off and general sense of unease across broader financial markets.

• The 100-year decline of the British pound from five to one dollar

On top of that, within the Bank of England itself there have also been policy conflicts, with the MPC attempting to rein in inflation while the Financial Policy Committee (FPC) buys bonds to calm the dysfunctional markets. Again, the MPC is trying to calm economic activity while the FPC had no choice but to carry out a policy similar to the stimulus of quantitative easing, in order to salvage a number of pension funds from the brink of collapse.

Equities and bonds are moving higher while the pound is giving back some of its earlier gains.