The political soap opera continues in the UK, with Prime Minister Truss playing the part of the tragic hero. Truss resigned earlier today, which was perhaps not all that surprising given the chaos that has engulfed her government from the get-go. Truss becomes the shortest-serving Prime Minister in British history, with a grand total of 44 days.
The Conservatives find themselves in a dreadful predicament and will do their best to avoid an election, with Labour far ahead in the polls. The fiscal U-turns under Truss’s ill-fated leadership have badly damaged the government’s credibility, and the new Prime Minister’s first priority will be to settle things down.
Truss’s brief time in office triggered an economic crisis, as the plan for unfunded tax cuts was poorly received, sending GBP/USD to a record low and forcing the Bank of England to intervene and prevent a bond market crash. The new Prime Minister will have their work cut out as they will have to restore investor confidence after a tumultuous six weeks.
The country’s economic situation is not looking good. Inflation is back in double-digits, rising to 10.1% in September, up from 9.9% in August and above the consensus of 10.0%. It was a similar story from Core CPI, which edged up to 6.5%, up from 6.4% and higher than the forecast of 6.3%. The Bank of England will have to continue raising rates, but a weak economy means that a recession is likely. The BoE meets next on November 3rd and policy makers will need to deliver a hike of 0.75% or a full point in order to maintain credibility in the fight against soaring inflation.
GBP/USD Technical
- GBP/USD is testing resistance at 1.1254. Above, there is resistance at 1.1399
- There is support at 1.1162 and 1.1085
