Liz Truss has been sworn in as the United Kingdom’s new Prime Minister, and she’s indicated that she’ll be pro-business and helpful to consumers, but will that translate to stock market performance?
On Monday, the Russian gas supply was discontinued indefinitely, causing global stock markets to drop sharply. German and French stock markets continued to plummet on Tuesday.
The UK Stock Market’s Reaction to Lizz Truss
These are trying times for stock market investors. The prospects of a devastating UK downturn grow by the day, causing worry among many. These types of conditions can negatively affect stock investors because companies have a more difficult time making a profit.
For stock traders, finding bullish market drivers is getting increasingly difficult. The energy crisis has reemerged following Gazprom’s decision to cease gas deliveries to the EU through one of its main pipelines. This was done in reaction to the G7 leaders’ decision to limit oil purchases by independent producers. If this goes poorly, the impacts could be significant, and stock traders are struggling to find anything positive in this scenario.
It’s unenviable to be prime minister during an economic crisis, but there is one distinct benefit: it becomes impossible to determine how much your own personal choices affect the markets compared to other factors. That might be beneficial to Truss, who has already decided to give a sum equivalent to the NHS’s yearly budget to energy producers rather than introducing price caps.
The Issue That Might Be Keeping Liz Truss Up At Night
Liz Truss has a lot of responsibilities. The United Kingdom is heading for a recession. Workers are going on strike as inflation erodes their living standards. And millions of people and thousands of businesses need immediate relief from soaring energy bills to get through the winter. In the midst of all this, Liz Truss is trying to keep the country afloat.
The inflation rate is now at 10.1 percent and it is expected to keep going up and the value of the pound has hit record lows against the dollar. This also means that UK borrowing costs are going up, and business and consumer confidence is dropping. The Bank of England is warning about a possible recession.
Is Liz Truss Scaring The Stock Markets?
Looking at the interest rate forecast chart alone, you might come to the conclusion that Rishi Sunak is correct about Liz Truss’s economic policies. In June, financial markets anticipated rates to climb to around 3.5 percent in 2023; now, they anticipate them to reach nearly 4.5 percent.
Liz Truss wants to shake up the Treasury with a new fiscal policy that she believes will boost growth. Monetary policy could also help: while Truss is not proposing to change the independence of the Bank of England, her Chancellor could always reset the Bank of England’s inflation target or even get rid of inflation targeting altogether.
While things are currently looking less than bright, we can only wait to see what happens over the coming months. As it stands, it seems as though millions will be forced below the breadline if nothing is done, so Truss will have to respond sooner rather than later to avoid getting ousted from her new position.