Investment - Articles - New PM Liz Truss and a weaker economy going forward


Commenting on Liz Truss being announced as Prime Minister, Frédérique Carrier, Head of Investment Strategy at RBC Wealth Management, said:

 PM Truss will likely be less keen to balance the country’s books than former Chancellor Sunak would have been, and interest rates are likely to increase further during her premiership.

 “PM Truss seems less fiscally conservative than former chancellor Sunak. She now seems to be in favour of supporting the economy other than through tax cuts. This ultimately means higher borrowing, and in turn it means the Bank of England could be forced to increase rates further than otherwise would have been the case.

 “For now, we expect the Bank of England to deliver two 50bps rate hikes at its meetings on September 15th and November 3rd as economic data has not deteriorated sufficiently yet to prevent it from being hawkish.

 “We still expect the UK economy to weaken materially going forward, but we don’t expect the labour market to weaken enough to prompt a return to a slower pace of tightening in November. A larger 75bps rise is possible at the November meeting but will likely depend on whether inflation surprises on the upside and the fiscal plans of the new UK government.

 PM Truss is less likely to repair the trading relationship between the UK and the EU than PM Sunak might have been. She broke off talks with the EU regarding the Northern Ireland protocol earlier this year, preferring to take unilateral action. Such a hard stance on this issue could ultimately lead to a trade war with a region which remains the UK’s main export market. This would be problematic given the already weaker UK economy.”

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