By Mark McSherry

UK prime minister Liz Truss fired her finance minister Kwasi Kwarteng on Friday — and scrapped parts of their economic package that led to turmoil in the financial markets.

Truss has been prime minister for only 37 days and many analysts say her premiership is already hanging by a thread.

Truss said the government will reverse its planned freeze on corporation tax, a move that will raise £18 billion a year, as she admitted that the September 23 “mini-budget” went “further and faster than markets were expecting.”

Jeremy Hunt has been appointed as the new Chancellor of the Exchequer, becoming the fourth UK finance minister in as many months.

“We need to act now to reassure the markets of our fiscal discipline,” said Truss.

The pound slid against the dollar after Truss spoke, trading 1.2% lower on the day at $1.1198 and two-year British government bonds turned negative.

Kwarteng announced a new fiscal policy on September 23, delivering the Truss government’s vision for vast tax cuts and deregulation.

However, the negative response from financial markets was so strong that the UK central bank had to intervene to prevent pension funds from being caught up in the chaos.

Kwarteng said he had resigned at Truss’s request.

“You have asked me to stand aside as your Chancellor. I have accepted,” said Kwarteng’s resignation letter to Truss, which he published on Twitter.

A Conservative Party MP told Reuters: “Problem is the markets have lost trust in the Conservative Party – and who can blame them?”

REACTION:

James Richard Sproule, Chief Economist UK at Handelsbanken: “PM Truss has bowed to market pressure and replaced her Chancellor Kwasi Kwarteng with Jeremy Hunt. Kwarteng lasting just 38 days in post.

“Hunt was most recently Foreign Secretary in 2019, replacing Boris Johnson when he was sacked by Teresa May. Hunt himself was a candidate for the Conservative Party leadership against Boris Johnson in the race to replace May.

“Hunt comes from the left (One Nation) part of the Conservative party and it is notable that Truss initially made her appointments almost exclusively from the Thatcherite right (something Thatcher herself did not do), but she has felt the need to reach out to a broader base of MPs in seeking to shore up her support in the party.

“A more general restoration of confidence in the UK requires investors to regain confidence in the government, not something that is likely to be established overnight, or even over a series of nights. That said, if there is one man who can bring a calm delivery and a sense of competence to the despatch box, it is Jeremy Hunt.

“Hunt will without doubt be keener on balancing the books as opposed to tax cuts, and that is without taking into consideration the febrile market circumstances. There has not yet been an announcement as to any changes to the date of the budget, set for 31 October. Our expectation is that the budget will still go ahead on that date …

“The rumour mill was of course already going full strength as to just how much of Kwasi’s ‘fiscal event’ was going to survive into legislation.

“The market reaction to the fiscal was unexpected, at least from Mr Kwarteng’s point of view; the UK’s debt position remain manageable (~100% of GDP), and while the budget deficit is high, and active QT was due to start, the UK issues debt in Sterling meaning there is no threat of default, and the ultimate level of UK Central

“Bank asset purchases was less than half the level seen in the Euro zone. No matter, investors demanded less radicalism and that is undoubtedly what they are going to get.

“The biggest tax reduction in Kwasi’s fiscal event was the reversal of April’s National Insurance rise in (costing the exchequer £18Bn in 2026) while the most controversial was the reduction in the 45% top rate of tax (£2 bln in 2026).

“The latter tax cut has already been discounted as being politically unfeasible. It is thought that the PM is keen to retain the former and given that it is aimed at middle income earners who are already facing a cost of living squeeze, it seems entirely probable that this move will actually be brought into legislation.

“As to tax rises, the most likely would be to reduce the tax advantages in pension contributions. In bringing the budget closer to balance, spending cuts are undoubtedly going to be contemplated.

“There is always the high speed rail line to the North of England (HS2, cost £100Bln+, albeit over many years) as well as raising the state pension in line with wages (~6%) as opposed to inflation (~10%+). Each comes with a big political cost, but then every decision comes with such a cost at the moment.”

Andrew Megson, CEO of My Pension Expert: “Even after a month of major shocks, this news is particularly momentous. Kwasi Kwarteng leaves with egg on his face, the economy in a downward spin, and Liz Truss’ premiership hanging by a thread.

“Forget any political point-scoring or personal agendas, this whole episode – from the mini budget on 23 September through to today’s unceremonious dismissal of the Chancellor – has set Britain back at a time when clear, decisive action was needed.

“Households across the country are trying to get a grip on their finances, pension planners have been trying to understand how fluctuations in financial markets will affect their savings, and retirees are re-entering the workforce in their thousands.

“Policies and financial support schemes were required to ease concerns, soften the blow of the cost-of-living crisis, and enable people to plan their finances more effectively; but what we have had is a string of unseemly U-turns and misjudged policies, which has confounded an already difficult decision.

“Let’s hope for a more measured, thought through economic action plan from Truss, if she survives this crisis, and whoever the new Chancellor might be (Jeremy Hunt or someone else).

“People are crying out for clarity, stability and a little calm across the financial markets. If these things cannot be delivered, and quickly, the calls for a general election and change of government will surely become too loud to ignore.”

Susannah Streeter, Senior investment and markets analyst, Hargreaves Lansdown: “The mini-budget has been torched yet again, with a corporation tax freeze the latest policy to go up in flames  – risking turning Liz Truss’s growth agenda to ashes.

“Rowing back on pledges not to raise corporation tax hasn’t come as a shock, either to politicos or the markets.

“Truss had to do something to try to convince investors that unfunded tax cuts weren’t out of control, and that the government was trying to take a more responsible fiscal approach.

“The tax-cutting agenda billed as a solution to the UK’s growth problem might have won plaudits amid the Tory grass roots but on the international stage it’s been highly criticised as going against the Bank of England’s attempts to pull down punishing inflation. Instead of giving a boost to business, the plans have resulted instead in costs of borrowing going up for the government, consumers and companies.

“This move hasn’t succeeded in reassuring the investors significantly. They are still reeling from Kwasi Kwarteng going abruptly from arrivals to a humiliating departure, in a fresh bout of UK political turmoil. The pound has stayed pretty volatile, falling back on the news of the Chancellor’s sacking, and has been hovering around the $1.12 mark, given that the expectation of policy reversal had already been priced in.

“Over the medium term the tax reversal may silence the bond vigilantes a little and stem a further exodus from gilts, but the government’s economic credibility has badly suffered over the past few weeks and it’ll take a lot more to repair the damage.

“Parachuting Jeremy Hunt into number 11, who was a key supporter of her rival for the leadership, Rishi Sunak, shows how desperate the Prime Minister is to build bridges with the wider Conservative Party.

“It shows a growing awareness that concentrating group-think in a small cabal of fervent fans might have been partly to blame for the political and economic debacle the government has experienced. Jeremy Hunt also campaigned against Brexit so there will be hopes the new Chancellor will adopt a more reconciliatory approach towards the EU when it comes to any cabinet discussions on the direction of travel for trade talks.

“We don’t yet know whether this is the end of the bonfire of the Mini-Budget. Liz Truss will be keen to draw a line in the sand, but we can’t underestimate the power of the markets to continue to disrupt her plans.”

Victoria Scholar, head of investment at Interactive Investor: “HMS Britain has lost another lieutenant as it awaits its fourth Chancellor in four months. The captain of the ship is looking wobbly too as she puts on her lifejacket and hopes to steady her ship soon.”

“In a shock turn of events, Prime Minister Liz Truss is attempting to restore credibility in her administration by firing the Chancellor of the Exchequer Kwasi Kwarteng amid the market mayhem that has played out since the announcement of his ill-fated mini-budget, forcing emergency intervention from the Bank of England.

“The government has carried out a series of embarrassing U-turns, bringing forward the date of Kwarteng’s medium-term fiscal plan, abandoning plans to scrap the top 45% rate of income tax and now there are expectations that the government will also U-turn on plans to scrap the increase in corporation tax next April from 19% to 25%.

“Following the ousting of the Chancellor, there is now speculation that a group of senior Conservatives could call on Liz Truss to resign next week.

“By letting Kwarteng go, Truss hopes that she can draw a line under the gilt market madness and the plunge in the pound, reinstate investor confidence and prove to the electorate that she is focused on fiscal discipline, rather than unfunded tax cuts.

“The Monetary Policy Committee (MPC) at the Bank of England has been laser focused on trying to bring inflation back down towards its 2% target. The Chancellor’s mini-budget entirely conflicted with the central bank’s policy by stimulating economic activity with tax cuts, borrowing and spending that would bring about inflationary side-effects.

“The tug-of-war between fiscal and monetary policy is what spurred the bond market sell-off and general sense of unease across broader financial markets.

“On top of that within the Bank of England itself, there have also been policy conflicts with the MPC attempting to rein in inflation while the Financial Policy Committee (FPC) buys bonds to calm the dysfunctional markets. Again, the MPC is trying to calm economic activity while the FPC had no choice but to carry out a policy similar to the stimulus of quantitative easing in order to salvage a number of pension funds from the brink of collapse.

“Equities and bonds are moving higher while the pound is giving back some of its earlier gains.”

Richard Carter, head of fixed interest research at Quilter Cheviot: “Kwasi Kwarteng’s fate shows just how serious the UK’s loss of credibility with the markets was, as he becomes one of the shortest serving Chancellors in history.

“The market will have been craving a safe pair of hands to guide the UK through this difficult period, so it will be interesting to see how gilt yields and the pound respond to Jeremy Hunt being given the difficult task of running the public purse. How long he gets to do this for will ultimately be the next question.

“Sterling continues to be a prominent victim in this fiasco, with its value against the dollar once again seesawing on the political turmoil that is playing out.

“This volatility will be going nowhere until we get some sort of stability at the political level and once fiscal and monetary policy are singing from the same hymn sheet. While such volatility can present good opportunity for investors, it is key they are selective in this given how much sway politics is currently having on the UK market.

“The expected U-turn on the mini-budget policies will be welcomed by investors and the market as a first step to getting the UK’s public finances back on a sustainable path. It is hoped too that this move takes the pressure off the Bank of England to raise rates too aggressively and thereby reverse some of the extreme moves we have seen in the gilt and mortgage markets.

“That is not to say interest rates won’t still rise – they need to in order to help tame the inflation beast – however, the BoE should be reassured enough at this stage that it doesn’t need to go harder or extend its support to pension funds that have been caught out by the rapid rise in yields.”

DeVere Group CEO Nigel Green: “After sacking Kwarteng, the Prime Minister used an unscheduled press conference to announce that corporation tax will rise to 25% this spring.

“The embarrassing U-turn means she is abandoning one of the flagship promises from her recent leadership campaign.

“The scrapping of her plan sees her revert to the commitment of Rishi Sunak, her campaign rival …

“The sacking of Kwarteng and the humiliating climb down on corporation tax will not be enough to calm markets and restore investor confidence in UK plc.

“Truss’s previous scrapping of plans, set out in the recent reckless mini-Budget, to axe the 45p tax rate wasn’t enough to reassure febrile markets as we have seen.  And this latest U-turn will not be either.

“There’s likely to be a brief relief rally in financial markets, but it will not be sustained.

“Why? Because it all smacks of incompetence. There will remain an underlying lack of confidence. After all, Kwarteng was merely the mouthpiece for Truss’s economic agenda.

“He was simply implementing the promises made for weeks by Liz Truss who has the lowest level of satisfaction with the public ever recorded for a British Prime Minister.

“In addition, the Bank of England has been forced to take drastic action to calm markets and the IMF, amongst many others, has weighed in hard against the government’s economic plans.

“This whole sorry debacle has blown a massive hole in investors’ trust in the UK …

“Besides a possible nominal relief rally, I am not convinced the sacrificing of Kwarteng and the latest U-turn on corporation tax will do much to restore investor confidence. The markets will reflect this. It’s too little, too late.”