This week we saw the prime minister and chancellor stick to their guns for all of 10 days before giving in and scrapping their plan to scrap the 45p rate of income tax. This helped deliver a modest recovery in UK assets but was not enough to lift the FTSE or gilts back to the levels they traded at before the announcements. The U-turn highlights the weak position that Liz Truss and Kwasi Kwarteng are in – without solid support either inside or outside parliament – and makes the government more vulnerable to other rebellions. The difficult week led one analyst note to conclude that foreign investors will view the UK as uninvestable while there is such chaos in the government.
Meanwhile, the energy crisis is back in the news after OPEC decided to cut output and take advantage of the opportunity to bank profits while they can. The move has reversed some of the recent decline in the oil price. But it seems very short term as a higher oil price means higher inflation, which means more aggressive interest rates hikes, which increases the chance of a deep recession and means less demand for oil.
For the following stories, please click on this link*
- UK– Kwarteng’s UI-turn helps calm markets
- Oil – OPEC+ cuts production to offset economic slowdown
- Inflation: Retailers feel different effects of rising prices
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