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Sterling rallies as UK PM Liz Truss resigns over mini budget fiasco

Person, Human, Home Decor REUTERS/Henry Nicholls
British prime minister Liz Truss announces her resignation outside Number 10 Downing Street

Sterling pared gains following the announcement that Liz Truss was resigning as prime minister of the UK.

The country’s mid caps jumped as much as one percent as Truss, speaking outside the door of her Number 10 Downing Street office, said a leadership election would be completed within the next week.

Brought down by her economic programme that sent shockwaves through the markets and divided her Conservative Party, Truss accepted that she could not deliver the promises she made when she was running for Conservative leader, having lost the faith of her party.

She said: “This morning I met the chairman of the 1922 Committee, Sir Graham Brady. We’ve agreed that there will be a leadership election to be completed within the next week. This will ensure that we remain on a path to deliver our fiscal plans and maintain our country’s economic stability and national security.”

Investors reined in bets of a full percentage-point interest rate increase by the Bank of England next month, after a top official said it remained to be seen whether rates would rise as sharply as the market has been expecting.

Truss’s resignation comes just just weeks after she was appointed as prime minister.

It follows yesterday’s resignation of home secretary Suella Braverman, and is less than a week after chancellor Kwasi Kwarteng was fired.

On September 23 Kwarteng unveiled his mini budget which included controversial tax cuts designed to spur economic growth, but criticised by many to be unfunded and only benefit high earners.

The pound then tumbled against the dollar and the Bank of England was forced into emergency bond-buying to stem a sharp sell-off in Britain’s 2.1 trillion pound ($2.3trn) government bond market that threatened to wreak havoc in the pension industry and increase recession risks.

After firing Kwarteng, Truss announced that corporation tax would rise to 25 percent as intended by her predecessor Boris Johnson, reversing her earlier plan to freeze it at 19 percent. Kwarteng’s cut to the highest rate of income tax had already been reversed.

His replacement Jeremy Hunt on Monday then scrapped “nearly all” of Truss and Kwarteng’s economic plan and scaled back her vast energy support scheme, announced in September, in a historic U-turn to try restore investor confidence.