Skip to main content
What in the World?

As pound plummets, PM Truss faces UK’s declining financial status

Share

Peter Zeihan

Geopolitical Strategist

Share

A month into her appointment as Prime Minister of the United Kingdom, Liz Truss faces a major crisis. The British pound has plummeted as financial markets reacted harshly to Truss’s plan to enact huge tax cuts that primarily benefit the highest earners, as well as a promise to boost government spending. To say the plan was negatively received would be a major understatement. Straight Arrow News contributor Peter Zeihan says as the pound plummets, the U.K. has an even bigger problem: Figuring out how to address its position as a fading financial power.

Excerpted from Peter’s Oct. 3 “Zeihan on Geopolitics” newsletter:

Last week (when the following video was recorded) saw the British pound get pummeled by global markets following the announcement of the Truss government’s “mini-budget.” The Bank of England intervened to help support the currency while newly-instated Prime Minister Liz Truss appears to have taken a few days to avoid the media spotlight, but the episode has eroded whatever support her weeks-old government had hoped to cobble together. This is a short term problem, however, that pales in comparison to the larger challenge facing the United Kingdom, its economy, and ultimately its place in the world. London emerged as a financial hub for a vast, global empire. After the World Wars, London survived as a clearing house of sorts for the broader EU–particularly between the EU and external economies, such as the United States and Asia. Brexit did away with all of that. And the British still haven’t figured out what comes next. So this market route is nowhere close to being over because we’re finally seeing, five years on, because the Brits have been unable to figure out what’s next, that the markets are starting to finally treat Britain as what it has always loathed: A middle power. 

And in that sort of situation, the amount of financial drainage that’s gonna come from the system is just absolutely mammoth. So unless the Truss government or its successor is able to hammer out some sort of post-European Union trade system with someone, we are only at the very beginning of a very long road down.

 

Hey everyone. Peter Zeihan here, coming to you from Birmingham, Alabama…You may have noticed that in the financial markets the United Kingdom is having a really, really tough week. The approximate issue is that the new government under Liz Truss released a short-term budget that the markets really did not like. And everyone seems to be piling on and punishing Britain in any way they possibly can. The pound has dropped precipitously and it’s entirely possible that it’s gonna be at parity with the U.S. dollar in the not-too distant future. And by not-too distant future, I mean possibly days. This is all wrapped up in some of the historical legacy stuff that the Brits are dealing with and failing to deal with. 

So compared to New York…so New York is a financial hub because it was within the United States system. The U.S. is the largest economy in the world and going back to the 1940s, the U.S. dollar became the global currency. And since New York was already the primary financial center for the United States, it then became the primary functional center for the world. To a degree, this is how things started in England as well. They were the heart of a global empire, a trading empire. But the real issue was that when the industrial revolution happened, it happened in Britain first. So for 150 years, the Brits literally brought guns to knife fights the world over and built the greatest empire in human history, which was also a trading empire. And London was the nerve center of all of that. So it was a global financial hub.

But the empire collapsed over the course of the world wars. And at the end of World War II, the U.S. dollar took over. So the fifties and the sixties were a really rough time to be in London because everything just kept getting downsized and downsized and downsized. But then in 1973, the United Kingdom joined the EU, and since it was still the largest financial center of all of the European countries, it became the de facto financial center for all of Europe. And it was almost like the Brits got a second empire – until they left with Brexit five years ago. 

What’s happening now is that the markets to this point have been incredibly kind to the UK because the UK hasn’t figured out what Brexit means. They haven’t figured out how to move on. They don’t have a functional deal for finance with the European Union. They haven’t gotten a deal with the United States. And there are a lot of secondary financial hubs that have boiled up around the world. Places like Dubai for example. If you’re going to invest and have a complete lack of morals, that’s where you go rather than going to London. And so London no longer has a net to spread and that is forcing a very different sort of situation on the country. 

So this market route is nowhere close to being over because we’re finally seeing, five years on, because the Brits have been unable to figure out what’s next, that the markets are starting to finally treat Britain as what it has always loathed: A middle power. 

And in that sort of situation, the amount of financial drainage that’s gonna come from the system is just absolutely mammoth. So unless the Truss government or its successor is able to hammer out some sort of post-European Union trade system with someone, we are only at the very beginning of a very long road down. Okay, that’s it for me. Until next time.

More from Peter Zeihan

Latest Commentary

We know it is important to hear from a diverse range of observers on the complex topics we face and believe our commentary partners will help you reach your own conclusions.

The commentaries published in this section are solely those of the contributors and do not reflect the views of Straight Arrow News.


Latest Opinions

In addition to the facts, we believe it’s vital to hear perspectives from all sides of the political spectrum. We hope these different voices will help you reach your own conclusions.

The opinions published in this section are solely those of the contributors and do not reflect the views of Straight Arrow News.

Weekly Voices

Left Opinion Right Opinion

Tuesday

Left Opinion Right Opinion

Wednesday

Left Opinion Right Opinion

Thursday

Left Opinion Right Opinion

Friday

Left Opinion Right Opinion