The economy was in a precarious state when Liz Truss became PM in September.
The government borrowed huge amounts during the coronavirus pandemic, to support the NHS, businesses and individuals.
Then prices started increasing sharply, partly driven by problems with supply chains in the wake of pandemic restrictions, and then by Russia’s invasion of Ukraine, which pushed up energy prices as Western countries shunned Russian oil and gas.
The cost of living is now rising at its fastest rate in 41 years.
Truss’s solution was to help with energy bills and also to boost economic growth, which she wanted to do by cutting taxes – lots of them. But she didn’t say how she would fund her plans, and didn’t release an independent economic forecast alongside them.
The government borrows from financial markets. Put very simply, investors need to be confident the government’s sums add up in order to keep lending to it. Investors lost confidence, the value of the pound slid downwards, the interest charged on government borrowing soared, and the Bank of England had to intervene. Interest rate rises followed, increasing mortgage costs for millions.
It’s complicated – but our simple guide to why the mini-budget was scrapped explains what happened.
Source: BBC