Lettuce Decide: Was Lizz Truss Really To Blame?

It's been a year since Kwasi Kwarteng's brief 38-day tenure as Chancellor, a period marked by controversial fiscal policies. The subsequent downfall of Liz Truss as Prime Minister is still fresh in public memory, and many hold them responsible for spiralling living costs and soaring mortgage rates.

But are these accusations justified?

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A Look Back at the Post-Mini-Budget Fallout

Immediately after Kwarteng's mini-Budget, the financial markets went into a meltdown, with the pound suffering significant losses.

The housing market was also affected; banks pulled mortgage offerings, and interest rates on fixed-rate mortgages rocketed.

By the end of September, 40% of mortgage options had vanished from the UK market.

The bond market, too, saw an immediate sharp reaction, resulting in record one-day borrowing cost hikes.

The Bank of England intervened by buying UK government bonds to stabilise the market.

Yet, despite these measures, financial market instability persisted, largely due to ongoing policy changes from various government leaders.

Fast-forward to today, interest and mortgage rates are even higher than they were during Truss's leadership, and inflation has only recently started to abate.

So, should Liz Truss continue to bear the brunt of the blame?

The Real Story on Interest Rates

The surge in rates over the past year has more to do with ongoing inflation than Kwarteng's mini-Budget.

While the latter may have been a catalyst, blaming it exclusively would be misleading.

Interest rates have been rising globally, but market predictions below suggest we might be approaching a turning point towards declining rates.

Just this week the Bank of England held interest rates at 5.25% ending a run of 14 consecutive increases.

The Bank cites its efforts to rein in inflation as the reason for increasing interest rates. While the effectiveness of this strategy for controlling inflation can be debated, there's no doubt that the issue remains a significant concern.

As the data below shows, the UK has had the worst of it, consistently outpacing most other countries. Only Greece, Italy, and Germany come close to matching our diminishing purchasing power.

The Impact on Pensions

The mini-Budget also caused disruptions in pension funds, particularly affecting those invested in government bonds.

The technical requirements forced Defined Benefit Pension Schemes to offload long-term bonds.

Personal pension investors felt it more than most as a combination of sell-offs and rising interest rates sent bond funds into a nosedive. This led to the most dismal performance for balanced portfolios in six decades. As we can see from the following Global Bond Returns, government bonds have dropped worldwide however none more so than at home with the past three years leaving the 10-year returns on UK bonds at the bottom of the global scale.

The Aftermath

Following Liz Truss's brief 49-day tenure as Prime Minister, her successors Rishi Sunak and Jeremy Hunt rolled back many of her misguided policies.

Despite these changes, mortgage rates in the UK remain stubbornly high, hovering around the 6% mark.

Additionally, the UK's inflation rates have not only spiked but also remained elevated for an extended period, making life more expensive here than in many comparable countries.

The current statistics paint a grim picture, indicating that the UK has indeed fared worse than most over the past year.

However, it would be unfair to lay the entire blame at Liz Truss's feet. She appears to have become a convenient scapegoat, even though the issues the UK faces were set in motion long before her brief stint in office.

Perhaps this is why she just won't disappear quietly, to underscore the point that although she may have momentarily steered the ship, the course had been charted long before.

The country is grappling with its highest national debt levels since the 1960s and the heaviest tax burden since Clement Attlee's post-WWII Labour government.

While Truss may have played a role in the current challenges, it's an oversimplification to lay all responsibility at her doorstep.