By Geoffrey Smith
Investing.com -- Liz Truss has resigned as Prime Minister of the U.K., less than two months after taking power.
"We set out a vision for a low-tax, high-wage economy that would take advantage of the freedoms of Brexit. Truss said in a brief statement outside 10 Downing St. "I recognize, though, given the situation, that I cannot deliver on the mandate."
Her departure ends a chaotic chapter which started with the ousting of Boris Johnson as Prime Minister in the summer, and culminated in financial market chaos that quickly forced Truss to abandon her signature economic policies.
However, Truss's exit does nothing to end a period of increasing instability in British politics that began six years ago with the country's decision to leave the European Union, a move that has so far failed to deliver any material improvements in U.K. economic performance and has caused immediate damage to its trading relationship with its neighbors.
"There are no words to describe this utter shambles adequately." said Nicola Sturgeon, the leader of the Scottish National Party, via Twitter. " A General Election is now a democratic imperative."
Leader of the Opposition Sir Keir Starmer also called for an immediate election, saying: "After 12 years of Tory failure, the British people deserve so much better than this revolving door of chaos."
The developments appear to end a brief flirtation with a set of policies that markets had condemned as unsustainable. Truss's choice as Chancellor of the Exchequer, Kwasi Kwarteng, had announced the biggest tax cuts in 50 years in his first act as Chancellor, without either specifying how they would be paid for, or allowing the Office for Budget Responsibility to vet his figures. The pound had fallen to a record low in response and triggered a destabilizing rout in government bonds.
A degree of stability has returned to the markets since Jeremy Hunt replaced Kwarteng as Chancellor on Friday and immediately reversed almost all of Kwarteng's tax cuts. Hunt also said that the energy subsidies announced by Truss will most likely be curtailed already at the end of the coming winter, rather than lasting for two years as initially planned.
As if numbed by the scale of the dysfunction in Westminster, the pound rose only modestly on the news, gaining 0.5% against the dollar to $1.1268 and 0.2% against the euro to 1.1488. The FTSE All-Share index was flat, while the U.K. focused midcap FTSE 250 index rose 0.9%.
The yield on the benchmark 10-year government bond, meanwhile, edged up after falling in anticipation of the news during the morning in London.
For some, the turmoil in the U.K. could be just the herald of broader upheavals across Europe and the developed world.
"The main point here is that, what Brits are encountering, is likely to be faced by many European nations shortly," said Tuomas Malinen, founder of GNS Economics, via Twitter. "Debt crises always appear, when years of reckless fiscal policies meet some larger shock. The potential of those is not lacking in #Europe."
Truss's departure sets an unwelcome record. She is the shortest-serving Prime Minister in British history, 'beating' George Canning, who died after only 119 days in office in 1827. Recent experience suggests that while the Tories may seek a 'unity' candidate to succeed Truss, the deep divisions within the party - over issues such as taxes, immigration and the environment - will make it hard to sustain any sense of unity.
Truss said there will be a new leadership contest within a week, and that she will stay on as Prime Minister until then.
The BBC reported that Hunt - who lost to Boris Johnson in a previous leadership contest - will not stand this time around. The Guardian meanwhile reported that Michael Gove, the former deputy Prime Minister, will also not stand.
The Times of London's political editor said that Johnson himself may be plotting a remarkable comeback. Johnson remains by far the most popular figure among Conservative Party members, but any attempts at a comeback would be complicated by the fact that a House of Commons investigation is still pending into whether he misled Parliament over repeated violations of Covid-19 lockdowns by himself and his staff.