"The damage is done" for UK government, amid U-turn turmoil

(Alliance News) - UK Prime Minister Liz Truss attempted to calm stormy seas on Friday, as she performed another fiscal U-turn and evicted her chancellor from Number 11.

Despite her efforts, analysts note a growing feeling that the writing is already on the wall for her premiership.

Speaking outside Downing Street on Friday, Truss announced she will drop the planned rise in corporation tax from 19% to 25%, in a move that will save the Exchequer GBP18 billion a year.

"As U-turns go it's a doozy," AJ Bell's Danni Hewson noted, given the freeze was set to be "the jewel in the crown" of her plans to woo the markets, and boost economic growth.

The markets, however, do not return her affections, as evidenced by the weeks of volatility following the unveiling of the mini-budget.

"The writing was on the wall when markets surged in anticipatory delight on the news that another post budget U-turn was imminent and moves on corporation tax have gone a long way to bolstering sentiment today. But it's a sticking plaster that's already curling at the edges," Hewson continued.

On a fateful Friday - the three-week anniversary of his now infamous mini-budget - Kwasi Kwarteng was sacked from his role as chancellor.

"His promise of a medium-term fiscal plan to be delivered on Halloween did not provide enough reassurance that the government was in control of economic policy and investors showed signs of taking fright again," said Hargreaves Lansdown's Susannah Streeter.

In his stead, Truss named former foreign secretary Jeremy Hunt as the new chancellor. Given his public backing for Truss's leadership rival Rishi Sunak, he is a diplomatic choice, which Truss likely hopes will help to heal the rifts within her party.

With Hunt's experience in various cabinet positions, many might consider him a "safe(r) pair of hands", amid all the turmoil caused by Truss's tax-cut-heavy budget.

Ironic, then, that when Hunt himself had briefly run for the Tory leadership this summer, Hunt had expressed a desire to cut corporation tax to 15% - "the lowest we're allowed to cut it to, according to international agreements," he told Sky News in July.

He would later come out in support of Sunak; the original architect of the corporation tax hike.

With four chancellors in as many months, the appointment is unlikely to have the stabilizing result Truss might have hoped. Some are now pointing to the threat of Truss herself being next in line for an ousting.

"Unfortunately for Truss, her swift ability to spook markets with a swathe of unfunded spending plans is now being followed by yet another rise in yields as markets wonder whether we could soon see another push to replace her," said IG's Joshua Mahony.

At a short press conference on Friday afternoon, Truss dismissed calls for her resignation, saying she is "absolutely determined to see through what [she has] promised".

Regardless of who she places at the helm of the Exchequer, "as far as the credibility of the government is concerned, significant damage has been done," HL's Streeter maintained.

"There will be a long way to go and significant bridge-building ahead before the UK risk premium disappears."

By Elizabeth Winter; [email protected]

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