Truss sacrifices finance minister and dismantles parts of British fiscal plan in fight for survival.

LONDON (Reuters) British Prime Minister Liz Truss fired her finance minister, Kwasi Kwarteng, on Friday and scrapped parts of her economic package in a desperate attempt to stay in power and survive political and market turmoil.

The pound and British government bonds fell while Truss gave an eight-minute interview at Downing Street, with economists and investors saying her reversal of the £20 billion ($22 billion) tax cuts was unlikely to calm financial markets.

Truss said he acknowledged that he went "further and faster" than the markets expected during his 37 days in office.

"Today I acted decisively because my priority is to guarantee the economic stability of our country," she said. "I want to be honest, this is difficult. But we will weather this storm."

Earlier, Truss fired his finance minister and close friend, Kwarteng, after he was forced to rush back to London overnight, leaving IMF meetings in Washington.

To replace him, she appointed Jeremy Hunt, a former foreign and health secretary who had supported her rival Rishi Sunak in the race to become leader of the Conservative Party. He is the fourth finance minister in four months in the UK, where millions are facing a cost-of-living crisis.

"This marks the first time in decades – since at least the 1990s – that financial markets have forced the government of a major developed economy with its own central bank to capitulate on major fiscal ambitions," said analysts at Evercore.

Kwarteng becomes the UK's shortest-serving Chancellor of the Exchequer, except for a predecessor who died suddenly in 1970. "You asked me to step down as your Chancellor. I accepted," he wrote in his resignation letter to Truss.

Truss's own position is now in danger.

She won the leadership of the Conservative Party last month by promising vast tax cuts and deregulation to pull the economy out of years of stagnant growth, and the fiscal policy that Kwarteng announced on September 23 aimed to put that vision into practice.

But the market response was so fierce that the Bank of England had to intervene to prevent pension funds from being caught in the chaos, as borrowing and mortgage costs soared.

Yields on long-term bonds that weathered the market turmoil are now about half a percentage point below the 20-year highs they reached on Wednesday, and are no longer returning to the levels seen before September 23.

Adding to the market pressures, polls show that support for the Conservative Party has collapsed, leading many colleagues to look for ways to force Truss out of office.

"The party loves the idea of ​​principles and political conviction, but staying in power is everything," a party source told Reuters.

RETURN TO THE MARKET

Having triggered losses in the market, Truss risks bringing down the government if he fails to find a package of public spending cuts and tax increases that will calm investors and pass through Parliament.

Your search for savings will be hampered by the fact that successive Conservative governments have been cutting departmental budgets for years.

However, discipline within his party has been breaking down, fractured by internal struggles, first encountering difficulties in reaching an agreement on how to leave the European Union and then on how to deal with the Covid-19 pandemic and grow the economy.

One lawmaker said Truss might survive, but was "seriously injured" and risked alienating the party that elected her. He described the situation as "confusion."

"If you can't get your budget approved by Parliament, you can't govern," Chris Bryant, a senior Labour MP in the opposition, said on Twitter.

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