Liz Truss resigned as U.K. prime minister after just 44 days.
It’s the shortest stint ever served in the position. While her tenure was brief, it was eventful.
Truss began her term promising tax cuts designed to spur economic growth. This created a political storm she couldn’t survive.
The government changed tax cut plans, which caused uncertainty in markets.
Now there are no plans for the more controversial cuts.
And the idea of a stimulus seems to have been lost in all the back and forth.
That leaves the U.K. economy headed toward a deep recession.
How Political Drama Could Lead to a Recession
Goldman Sachs forecasts that the U.K. economy will contract by 1% in 2023.
Just weeks ago, the firm expected a mild 0.4% contraction.
There is a significant difference between Goldman’s forecast and the consensus of the Bank of England.
The firm is more optimistic about 2022 but more pessimistic about the next two years for the U.K. economy.
The Bank of England is even more pessimistic, forecasting a contraction in each of the next two years.
Goldman believes the recession is already underway, a sentiment shared by many.
U.K. Economy May Already Be in a Recession
Expectations are for a 0.6% contraction in the U.K.’s GDP this quarter.
Investors might want to wait before buying into the U.K.
Rishi Sunak was just appointed the U.K.’s new prime minister on Tuesday.
During his losing campaign that occurred just weeks ago, he warned that Truss’ plans would lead to higher inflation and cause a sell-off in bond markets.
That’s what happened.
And now Sunak may have a chance to prove he knew better.
One analyst told CNBC: “Overseas investors are likely to see this political volatility as another reason to get out of U.K. assets.”
Bottom line: That may be excellent advice for U.S. investors who also face uncertainty at home.
There is no need to add risk by buying into a foreign market with no sign of a bottom.
Michael Carr is the editor of True Options Masters, One Trade, Precision Profits and Market Leaders. He teaches technical analysis and quantitative technical analysis at the New York Institute of Finance. Follow him on Twitter @MichaelCarrGuru.
