A change in leadership

Prime Minister Truss resigns – what next?

The UK remained centre stage this week amidst a turbulent week in Parliament. Our shortest ever serving Prime Minister by a distance will make way for a yet to be chosen replacement, with a supercharged selection process now in motion. Whoever the next Prime Minister turns out to be, the room for manoeuvre will remain very limited. Even after the reversals announced by the new Chancellor, there is still more that needs to be found. Markets will now be more wary, perhaps a little less forgiving of the usual fiscal fudges.

It is very easy to be negative on the short-term outlook for the UK. Even before the fiscal abracadabra of the last couple of weeks, policymakers were faced with an unenviable set of trade-offs. The jump in mortgage rates has only constrained operating space further. The economy may already be in recession, one that may now have to be prolonged by the government’s need to find more savings.

We are certainly positioned for the short-term economic outlook in the UK to darken further in our tactical portfolio. However, as with elsewhere in the world, we recommend resisting the urge to focus only on the downside risks from here.

Much of the increased strain on mortgagers will fall on households that can more easily bear it. Over 90% of mortgages outstanding are concentrated in the top half of households by income distribution. There are still some excess savings from the last crisis here, which may help in absorbing the blow from higher borrowing costs without recourse to spending cuts. Meanwhile, we would also steer clear of ideas that there is a fixed amount of public debt (relative to GDP) that the economy can stomach. The UK has borne a much larger relative debt pile in the past and moved beyond it relatively quickly (Figure 1).

The answer, as always, is productivity growth. If the answer to reigniting productivity growth was unlikely to be found in tax cuts (though its advocates may argue that we will never know), then there is still plenty that can be practically done. Once the political dust has settled on the tumultuous last few weeks, we can still argue that the UK enjoys enviable comparative advantages in many globally important sectors. She plays host to several of the world’s top ranked universities and will continue to benefit from London’s status as one of the planet’s greatest cities. Difficult times are ahead, of that there can be little doubt. However, there is much that can be done to improve the medium-term outlook still and it may be that help, in terms of a range of innovative breakthroughs in the wider world, is on the way.?

Find out about our '?Ready-made investments ' via our Smart Investor platform. A selection of five Barclays funds that each aims to increase the value of your investments over time, using a broad mix of asset classes from across the globe.

Or

Learn about?Barclays Wealth Management , the affluent and high net worth service provider for Barclays UK.

*This article is for information purposes only. It is not intended as a product offer or investment advice