Impact of corporation tax U-turn on mortgages, pensions and markets

Short-termism is back in fashion. Liz Truss appears to have given up her growth agenda and now apparently is without a plan or a friendly Chancellor. In the short term, this will have a positive impact on markets and most importantly Gilts, which is why she was forced to act. The Bank of England refusing to extend their emergency liquidity facility meant she was faced with backing down dramatically or being forced out as pension funds collapsed. In the long run, though, the underlying issues she was trying, badly, to combat are still there; namely interest rate rises to combat inflation, a strong Dollar and a flagging UK economy. If we are no longer looking to grow our way out of debt then the Government, and the country are faced with some far more painful decisions next year. The lesson for future Chancellors is clear: the markets will not accept uncosted spending. The sad truth is that history may yet look back with some sympathy for Kwazi, who may have had the right idea but executed it with all the the ability of a first week contestant on Strictly Come Dancing. Raising corporation tax may well prove to be the straw that breaks the British economy's back.

The sacking of the now former Chancellor was always coming, it was only a matter of time. The U-turn on corporation tax cut may not be perceived by businesses so well as they will need to pay more, however, a lack of customers paying for their goods and services is much more damaging than tax. I don’t believe frantic Friday will have much impact on interest rates as inflation is still soaring, and Bank of England may find this to be the best time to increase the base rate while lender rates are so high. The only thing Liz Truss and her Cabinet did was speed up the increase of rate rises as there was no confidence in her. With the announcement of Jeremy Hunt being the Chancellor, everyone is now hoping he brings some form of stability back to the economy or at least a plan to do so. The feedback from MPs after the PM’s announcement was not exactly abounding in confidence. MPs have reportedly been leaking WhatsApp messages that the conference was poor, not what they needed, and it may see the end of her short-lived tenure as PM. I for one, would like to see her go as she has done more damage in 5 weeks that she has been in charge, and I would like to see someone take the helms who can do more to save the economy and give the public a better explanation rather than the terms of “high growth”, which seems to be Liz Truss’ favourite phrase.

We'd love to see this as a turning point for mortgage interest rates, but that's in no way guaranteed. Such brazen backtracking on policies doesn't breed trust in Truss as a leader and we may still see some uncertain times ahead. As the saying goes, a captain must go down with her ship. Yet we still find Liz holding onto a life raft in the Atlantic without a lifeboat in sight.

According to Liz Truss, the decision was made to bring back stability to the UK market, however it seems more like adding water to a sinking ship. There needs to be some real and tough changes made soon if is going to have any effect on the UK markets.

A new chancellor won't mean a great deal for anyone as the reason given by lenders for the high interest rates is the "current economic uncertainty". Changing chancellors, changing policies, making U-turns left and right, I would say things are getting more uncertain, not less.

When the Truss-Kwarteng collaboration first pulled a handbrake turn, I said a flip flop doesn’t restore confidence. That sentiment stands. Sacking her sidekick and ploughing on with the corporation tax hike isn't the outcome the PM hoped for. The tax policy goes against the Prime Minister's ideology and does the opposite of what the incoming Chancellor has backed in the past. To round things off, it also squeezes our SMEs. These are small businesses that employ three fifths of private sector workers. It will put more pressure on employers that are already struggling with increasing costs. It's a policy that makes the UK unappealing to investment. I struggle to see how this move stabilizes a rocking ship.

Don't hold out any major hope for rates to drop. We might see a slight decrease, but rates have been increasing due to economic uncertainty and changing the Chancellor isn't going to fix that issue. I really wish it would, but it won't.

The bond markets seem decidedly unimpressed by Truss' u-turn on corporation tax, probably because it only plugs £18 billion of Kwartengs £43 billion of unfunded tax cuts. Gilt yields actually rose after the PMs uninspiring press conference. She couldn't get off stage quick enough. I think markets will remain volatile until Truss falls on her sword, possibly in the next few days.