UK Chaos: Truss Sacks Kwarteng, Set To Unveil Major U-Turn On Tax Cuts

Update (0757ET): 

News so far has led to a continued rally in UK bonds. Yields on the 10-year gilts are down about 23bps this week. 

This will be the most significant move since late May if the bond rally holds. 

On the other hand, the pound has given up any gains and hit a new low in the session, trading below the $1.12 handle. 

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Update (0735ET): 

Liz Truss sacked chancellor Kwasi Kwarteng after he recently unveiled plans for £45 billion worth of unfunded tax cuts that sparked financial armageddon and forced the Bank of England to restart buying bonds as the pound and gilt markets were thrown into turmoil. 

Per BBC: Kwasi Kwarteng out as UK chancellor after mini-budget sparked financial turmoil and revolt from Conservative MPs

Kwasi Kwarteng out as UK chancellor after mini-budget sparked financial turmoil and revolt from Conservative MPshttps://t.co/8uKfgnNdkI

— BBC Breaking News (@BBCBreaking) October 14, 2022

Kwarteng was only on the job for six weeks. His sacking makes him the shortest-servicing chancellor since 1970, according to The Guardian. 

Shortest serving chancellors post-war
1. Iain Macleod, 30 days (died in office)
2? Kwasi Kwarteng, 38 days
3. Nadhim Zahawi, 63 days (caretaker)
4. Sajid Javid, 204 days
5. Peter Thorneycroft, 358 days

— Henry Dyer (@Direthoughts) October 14, 2022

Former LBC presenter Matthew Stadlen notes the sacking of Kwarteng “isn’t a recipe for economic stability.”

Just to get this clear, never in the history has there been so much instability and churn in the First Lord and Second Lord of the Treasury. That’s 301 years by the way… that’s one figure that doesn’t need checking by the OBR

— Sir Anthony Seldon (@AnthonySeldon) October 14, 2022

Truss’ upcoming press conference is expected at 2 pm local time. 

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Just a few hours before the Bank of England ends its emergency bond-buying program, new reports indicate Prime Minister Liz Truss will hold a press conference later today in what could be one of the most significant political U-turns in decades. There are also reports that Chancellor of the Exchequer Kwasi Kwarteng will be sacked. 

Bloomberg said Truss would reverse parts of her economic strategy in an upcoming news conference, following weeks of market turmoil in the pound and gilt markets after announcing £45 billion worth of unfunded tax cuts.

Daily Telegraph’s Ben Riley-Smith explained more about the upcoming news conference and historic reversal in a tweet: 

Corporation Tax will **rise** to 25% from 19% this April, Liz Truss will announce at 2pm press conference today.

A huge climb down. Sticking to Rishi Sunak’s original plan. Removes central plank of her leadership bid. 

🚨Exclusive: Corporation Tax will **rise** to 25% from 19% this April, Liz Truss will announce at 2pm press conference today.

A huge climb down. Sticking to Rishi Sunak’s original plan. Removes central plank of her leadership bid. More here: https://t.co/tJvN01vDSd

— Ben Riley-Smith (@benrileysmith) October 14, 2022

Chancellor of the Exchequer Kwasi Kwarteng cut his International Monetary Fund (IMF) meetings short and landed in London Friday morning. 

You know it’s an important political news day in the UK when news channels are live-streaming a (beautiful) Airbus A380, this time with the UK Chancellor onboard…#Kwarteng pic.twitter.com/rLS7wnz7li

— Alex Macheras (@AlexInAir) October 14, 2022

As Kwarteng arrived in London, Steven Swinford, a political editor at the Times, said, “Kwarteng is being sacked as Chancellor as Liz Truss prepares to reverse the mini-Budget.” He said it wasn’t clear who would replace him. 

EXCLUSIVE:

I’m told that Kwasi Kwarteng is being sacked as Chancellor as Liz Truss prepares to reverse the mini-Budget

Not clear who will be replacing him

Events moving very, very quickly this morning

No 10 not commentinghttps://t.co/LoUAVxD00N

— Steven Swinford (@Steven_Swinford) October 14, 2022

FT’s Henry Manc pointed out that Kwarteng has only been in office for 39 days — 25 fewer than his predecessor Nadhim Zahawi. 

Kwasi Kwarteng has been chancellor for 39 days – 25 fewer than his caretaker predecessor Nadhim Zahawi

— Henry Mance (@henrymance) October 14, 2022

Here’s a list of chancellors and how long they spent in the office. Kwarteng is likely to be the shortest in the post-war era. 

Shortest serving chancellors post-war
1. Iain Macleod, 30 days (died in office)
2? Kwasi Kwarteng, 38 days
3. Nadhim Zahawi, 63 days (caretaker)
4. Sajid Javid, 204 days
5. Peter Thorneycroft, 358 days

— Henry Dyer (@Direthoughts) October 14, 2022

Some are saying Nadhim Zahawi or Sajid Javid could be Kwarteng’s replacement. 

🚨The always plugged in @Steven_Swinford is reporting that Kwasi Kwarteng is being sacked as chancellor as Liz Truss prepares to reverse mini-Budget.

Treasury sources tell us that Nadhim Zahawi or Sajid Javid could replace him at No 11.

Events moving very fast.

— Pippa Crerar (@PippaCrerar) October 14, 2022

Torsten Bell, chief executive of the Resolution Foundation, explained why the U-turn is necessary right now:  

U-turning now not the end of October is important because it reduces the fiscal hole:
– directly (ie you don’t have to pay for the tax cuts) AND
– indirectly (ie the falls in market interest rates will cut @OBR_UK debt interest forecast which is doing a lot of the damage)

— Torsten Bell (@TorstenBell) October 14, 2022

UK government bonds continue a rally; the pound swung up and down on reports of Truss’ reversal plans and the sacking of Kwarteng. 

Truss’ announcement later today and what appears to be the sacking of Kwarteng comes as an attempt to restore market confidence amid turmoil in the pound and gilt markets … but the question: Will it be enough?