UK prime minister Liz Truss fired chancellor Kwasi Kwarteng on Friday and is preparing to announce what is expected to be a U-turn on UK fiscal policy after market backlash against large unfunded tax cuts.
Krishna Guha, economist at Investec, said that this marks the first time in decades “that the financial markets have forced the government of a big developed economy with its own central bank to capitulate on core fiscal ambitions”.
He said that credit also goes to the Bank of England governor Andrew Bailey, whose refusal to extend the BoE’s gilt intervention “forced Truss to face reality”.
George Lagarias, chief economist at Mazars, said “investors will remain sceptical for the foreseeable future”.
“Until outstanding Brexit issues are resolved, and the country acquires a steady path towards a post-Brexit future, long term investors may be more opportunistic in their approach towards the UK,” he added.
“Liz Truss is still facing a Rocky Horror Show of her own making,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“Even if this embarrassing reshuffle is accompanied with a fresh reversal of policy, as far as the credibility of the government is concerned, significant damage has been done,” she added.