I cannot help but wonder if Liz Truss would have pursued her dream to become Prime Minister if she had any inkling of how things were to turn out in the first few weeks of her Premiership. It is said that a week is a long time in politics, but the past few days have seemed like a lifetime. Never have I known such a rapid turnaround in Chancellors of the Exchequer. Four in as many months beggars belief. And as for the policy changes. This latest fiscal event wasn’t just a U-turn. It was a handbrake turn at speed, with all the screeching of tyres and the smell of burning rubber that such a manoeuvre entails.
It certainly looks as though the real power in Downing Street now rests in Number 11. Jeremy Hunt’s trashing of Trussonomics was spectacular to say the least. Fortunately, markets appeared relieved that some form of financial responsibility had returned to Westminster. Sterling recovered the ground lost in the immediate aftermath of Kwasi Kwarteng’s mini budget, the Footsie edged back up towards 7000 and, perhaps most important of all, gilt yields settled down and the prospect of sharp rises in interest rates subsided – a little.
The fact is we are in an inflationary environment when central banks should be expected to increase the cost of money to dampen demand. Our own headline figure for the rise in the cost of living worryingly moved into double figures – the highest rate for 40 years. But inflation is not just a domestic issue. With rising prices putting pressure on consumers, a general slowdown in economic activity all around the world looks likely. Even the powerhouse of global growth, the People’s Republic of China, is expected to disclose some disappointing numbers, but only after the Communist Party Congress is over.
For investors these are tricky times. The depth and length of any recession will be crucial in determining how swiftly confidence can be rebuilt. There is a plus, of course, as there usually is. Oil and gas prices have been subdued of late as demand diminishes. Little wonder OPEC has chosen to limit production. We can only wait and watch and trust that geopolitical tensions do not upset sentiment more than they have already.