Liz Truss’ first task is obvious: announce a plan on energy prices to get the country through the winter. The second task, though, is almost as important: avoid scaring the financial markets. On that score, Deutsche Bank’s currency analysts were merely stating the obvious in a note on Monday when they greeted the new prime minister by saying the risk of a balance of payments crisis in the UK “should not be underestimated” and that “policy announcements over the next few weeks will be key in determining the risk of extreme macro outcomes”.
A remarkable feature of the overlong leadership campaign is that the sketch of “Trussonomics” has barely graduated from soundbites about a “pro-growth” mindset and “supply-side reforms”. Both ambitions might be considered virtuous goals, but the accompanying promise of unfunded tax cuts is what worries markets. Today’s pressing problems are a widening current account deficit, the highest inflation in the G10 group of rich nations, and a large chunk of national debt payments tied to interest rates. Looser fiscal policy is not the orthodox prescription to those problems.
