It’s worth saying at the outset that not everything that went wrong last autumn – with Britain’s financial markets plunged into chaos and the pound sliding to the lowest level ever against the US dollar – can be laid at the door of Liz Truss.
There were plenty of other explanations for why the UK was vulnerable to a financial shock.
Most glaringly of all, the Bank of England was in the process of reversing quantitative easing, its epic bond-buying scheme. Financial markets were being asked, all of a sudden, to buy an extra slug of the government bonds they sold to the Bank years ago. It was a recipe for indigestion.
The economy was still recovering from the pandemic, from lockdowns and the supply chain disruption that ensued.
The public finances were in a particularly weak position, with the national debt having rocketed higher to finance the furlough scheme.
Much of the economic data at that point suggested the UK was worse hit than any other major economy and the pound was already sagging, dropping against the US dollar from early 2022.
Britain, in other words, looked vulnerable. There were bombs buried throughout financial markets. But here’s where things get less flattering for the former PM, because there’s little doubt that what pushed the UK over the edge was the behaviour of Ms Truss and her team.
You can see as much when you look at various metrics of financial stress, from the strength of the pound to the height of government bond yields to the credit default rates which signal how likely the UK is to default on its debts.
All of them peaked in the days after the mini-budget. And all of them dropped back down again as it became clear the prime minister was going to resign. The pound has recovered and the main explanation behind higher government bond yields is not credibility but rising interest rates.
Ms Truss acknowledged her part in this on Monday when she said: “It is certainly true that I didn’t just try to fatten the pig on market day; I tried to rear the pig and slaughter it as well. I confess to that.”
However, this is not an incidental problem. This was the major problem at the time. Markets were not passing judgement on the intricacies of the mini-budget and its various measures. They were making a bigger, simpler statement: we don’t trust you.
The problem wasn’t the Truss plan for growth, it was the ham-fisted nature of the way she was going about it. At a time when the UK (like many developed economies) was on the financial precipice, this tipped the country over the edge.
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In one sense, those on the right of the Conservative Party should be reassured by such a verdict. What happened last autumn shouldn’t end the long-running debates over what we should do with taxes. It shouldn’t end the conversation about how to boost economic growth.
Indeed, Britain still faces many of the same issues it did last year: weak growth, high current account and budget deficits, a wayward set of economic policies and some big question marks about monetary policy.
Markets weren’t casing a verdict on all that stuff. It’s far more simple than that. They lost faith in the government. It squandered its credibility and for a few weeks we danced on the edge of crisis.
Then Liz Truss left office and the credibility crisis ended. Time to move on.