Trussonomics? What to watch as the new UK prime minister battles multiple crises
LONDON — New British Prime Minister Liz Truss faces a confluence of economic challenges, but will need to balance her own ideals with the immediate needs of the country.
Last week, Truss announced an emergency fiscal package involving the capping of annual household energy bills at £2,500 (£2,891) for the next two years, with an equivalent guarantee for businesses over the next six months and further support in the pipeline for vulnerable sectors.
The plan is expected to cost the public purse more than £130 billion, with new Finance Minister Kwasi Kwarteng expected to outline how it will be funded later this month, but is broadly seen by economists as a positive step to limit inflation and reduce the immediate risk of recession.
Former Finance Minister Rishi Sunak's energy rebate package for households will remain in force, while the Bank of England will establish a liquidity facility to aid firms in the wholesale energy market to weather extreme price volatility.
The fiscal package remains «pivotal» to the U.K.'s growth outlook, according to Modupe Adegbembo, G-7 economist at AXA Investment Managers, who suggested in a research note Monday that the support to real incomes and growth boost will «likely be enough to prevent the economy slipping into a prolonged recession.»
U.K. GDP grew by 0.2% month-on-month in July, official figures revealed on Monday, below consensus expectations for a 0.4% expansion. GDP contracted by 0.1% in the second quarter of 2022, and Adegbembo suggested that the additional public holiday this month for the funeral of Queen Elizabeth II may tip the U.K. into a technical recession this quarter.
The announcement has led major banks to rapidly reappraise their inflation projections. Barclays now
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