UK Prime Minister Resigns Raising the General Election Prospects

Bridgette Randall
20 Oct, 2022
Frankfurt

U.K. political turmoil consumed another prime minister in less than two months after Liz Truss was forced to cut short her appointment. 

Prime Minister Liz Truss announced her resignation and the UK will search for its fifth prime minister in six years, third Conservative prime minister to lose job in as many years. 

Truss' premiership lasted only 45 days, the shortest on record after economic missteps damaged her credibility and party rebellion evaporated her authority.  

Political infighting and mini-budget proposals and U-turns sapped support for Truss'  leadership as post-Brexit turmoil reached a new high. 

About three weeks ago after the release of the Truss government's mini-budget which included unfunded and uncalled tax cuts for the wealthy, sparked a bond market turmoil and sank the pound more than 3%. 

The sudden and sharp market swings led the once unthinkable Gilt market meltdown prompting the Bank of England to take emergency steps costing the central bank 65 billion pounds.  

The Conservative Party is expected to announce its new leader on or before October 28 and former finance minister Rishi Sunak and the Leader of the House of Commons Penny Mordaunt are expected to be the front runners. 

Former Prime Minister Boris Johnson is also looking to to run for the leadership but Liberal Democratic Party has urged Conservative Party to prevent Johnson from seeking the office again. 

With no clear leader in sight, the turmoil in Conservative Party is likely to spillover in financial markets in the weeks and months ahead. 

The  UK may be headed for a general election sooner than 2024 if the Conservative Party fails to stop infighting and finally accepts that the the party's parliament members are not in a position to form a stable government. 

For now, the British pound held firm at $1.12 and the yield on the 10-year Gilt traded unchanged at 3.89%. 

However, the pound is expected to resume its slide and the yields on the UK government bonds are estimated to resume advance as the U.S. Federal Reserve Bank continues its aggressive rate hikes.  

The political turmoil set in motion by the Brexit event in 2016 has been compounded by the coronavirus pandemic and four-decade high inflation and voters may decide the next prime minister sooner than the required date in 2024. 

The British pound has fallen about 41.5% from $1.71 on July 7, 2014 to the 4-decade low of $1.05 on September 26. 2022.