Prime Minister Truss of the United Kingdom has resigned.
The UK is looking more like Italy and Australia these days. High turnover indeed.
The PM did not seem to know what the job was, let alone be up for the job. Why did the Party choose Truss? The performance has been so very poor. Not just in decisions made, but also in follow-up media and parliamentary appearances.
Western capitalism on the wane?
This is not just about individuals. It is very much part of the process of western capitalism and democracies having reached a stage of maturity that in many ways becomes self-debilitating.
The US and the UK are both experiencing significant economic turmoil, and political mismanagement and are keen to continue to play a dominant role in world affairs when breakthrough economic and policy decisions are required on a historic level.
This global leadership role is causing them to take their eye off the ball. That of very mature legislative and capital systems that have grown to be characterised by over-regulation, over-taxation, and squeezed profit margins.
Meanwhile, the more strident economies of Asia and elsewhere, due to simply being younger in the adoption of democracy and capitalism, remain characterised by much lower regulation and taxation, with still quite wide profit margins for businesses to prosper.
Rough road ahead for the UK
The road ahead for the UK is not an easy one. Regardless of who becomes the new Prime Minister. Who in turn is likely to last only as long as until the next election.
‘Business as usual’ will not save the UK, as it indeed begins to sink beneath the waves. The working and middle classes are being terribly squeezed by high energy and food costs while the Bank of England adds to their pain with rate hikes. Then, the elephant in the room, the war in Ukraine, is never far from consumers’ minds.
UK Consumer Confidence is an extreme all-time crisis lows. Much worse than in any other recession, the sovereign debt crisis or even during covid lockdowns.
Will Boris come back?
There is no easy path out of this matrix of economic decay. Consumers are depressed. The government is running out of Prime Ministerial candidates. There is even speculation Boris may make a comeback. It could be argued he is the best chance of retaining government, but a loss is probably a sure thing regardless of who leads.
Should Boris Johnson make a comeback, not probable, the only change that may occur is a further stiffening of the UK stance against Russia. Any economic insight and revolution would appear to be beyond the grasp of the current government in its entirety.
A change of government is coming, but the newcomers sadly appear to have little new to offer as well.
Grim outlook for the Sterling
The demise of the UK appears to be quickening, and the outlook for Sterling is nothing short of dire.
Though some immediate stabilisation of the currency has been seen on the day, the prospect that anything material is going to change for the better in the UK appears fanciful. The most likely scenario from here involves a full onslaught of prolonged recession, change of government with few to no new ideas, and even power black outs as winter truly bites.
While Sterling has fallen significantly already, the process is unlikely to be complete. Given the fundamental reality of an economy heading into recession with zero leadership vision, the most likely scenario would be a giving up of recent strong gains to again embark on a journey to below parity to the US dollar.
The eventual target for Sterling may well be 0.9200.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
