Rishi Sunak is UK's third PM in three months: What led to the political crisis in England?

By: Lakshita Bhagat

With Truss’s fall from grace within six weeks of taking over the office, she will be known as the PM with the shortest stint in the country’s post-war history

The verdict is out— lettuce has outlasted the recently sworn UK Prime Minister Liz Truss. Literally! The British media, famous for its ruthless humour, had compared the tenure of Truss with the shelf life of unrefrigerated lettuce. The tabloid Daily Star even ran the live feed of the competition, and as predicted, the lettuce won. With Truss’s fall from grace within six weeks of taking over the office, she will be known as the PM with the shortest stint in the country’s post-war history. Before we ask why the UK has to change its PM for the third time in three months, let us see UK prime ministers with the shortest terms. 

What went wrong?

As if the ‘Partygate’ scandal was not enough, that ousted Boris Johnson, the UK political landscape has been rocked again with the resignation of Truss, further deepening the political chaos. However, what led to the downfall of Truss? The short answer would be economy. Truss came on the agenda of cutting taxes and providing energy price guarantees. These and more economic measures became part of the economic revamping plans dubbed the ‘mini budget’. Truss and her loyalist finance minister, Kwasi Kwarteng, spearheaded the reforms. The fiscal prudence of these reforms had attracted criticism even before their implementation. Rishi Sunak, the new PM had warned that widespread tax cuts financed by borrowing would be unsustainable. This led to the triggering of a vicious cycle of a textbook case of an economic crisis that resulted in the accumulation of debt, loss in market confidence, flight of assets from the UK, plummeting of sterling to its lowest against the dollar, and damage to the bond market that forced Bank of England to step in to contain the disaster by buying government bonds (gilts). 

Mounting criticism of the economic rejig led Truss to fire her chancellor of the exchequer. This was followed by more cabinet ministers resigning. The growing dissent within the Conservative party against her came to the foreground. As Jeremy Hunt replaced Kwarteng and junked governments’ tax cut plans, Truss found herself in an indefensible position. This ultimately sealed the departure of Truss from the high office. 

Where does the UK economy stand right now 

The inflation in the UK is the highest in four decades at 10.1%, belying many experts who thought inflation rates might not breach the 10% mark (see the chart below). Of course, the present inflation levels are well beyond the targeted limit the government and the central bank set.

UK Inflation Hits 40-year High at 10.1

The surge in prices across the board is mainly triggered by a sharp increase in food and energy prices (see charts below). With the arrival of winter and the lifting of Covid curbs, demand for oil and gas has shot up. However, supply has been hit due to geopolitics constraints in the wake of the Russia-Ukraine crisis. The war has also affected the supply of grains leading to a rise in food prices. With no actual wage increase, people are finding it hard to pay bills and experience the worst cost of living crisis in decades.

2. Annual CPIH and CPI inflation return to July 2022 highs

Source: Office for National Statistics, UK

[CPI-Consumer Price Index; CPIH- Consumer Prices Index including owner occupiers’ housing costs; OOH- owner occupiers’ housing costs]

3. Inflation rate for food and non-alcoholic beverages reaches 42-year high

4. Natural Gas, UK, last 25 yearsRoad ahead

There are no two ways Truss inherited an economy bruised by the effects of Covid restrictions and the Russia-Ukraine crisis. However, her successor has a more tough road ahead of stabilising the economy, infusing market confidence, and building people's trust.