In a statement in front of No.10 Downing Street at just after 1.30pm, she said she was unable to take her mandate forward and was standing down.

Ms Truss was elected six weeks ago but was beset by criticism, particularly of the disastrous mini-Budget presented by former Chancellor Kwasi Kwarteng on 23 September.

The fall out from the mini-Budget trigged a wave of uncertainty in the gilt market and led to Bank of England intervention.

Home Secretary Suella Braverman also resigned yesterday and was critical of the Prime Minister. It was the latest in a series of setbacks for the Prime Minister who will now likely take up a caretaker role until a replacement is found.

There will now be a new leadership election within the Conservative Party for a new leader with some suggestion the process will be speeded up.

Speculation about a replacement for Ms Truss has included Rishi Sunak, Penny Mordaunt, Suella Braverman and a return of Boris Johnson. Chancellor Jeremy Hunt has ruled himself out of any leadership challenge.

Markets have initially reacted positively to the news. Industry reaction has been mixed, with some experts expressing relief that further speculation over Ms Truss would be ended but there was concern about economic policy under a new Prime Minister and what might change. Some said Financial Planning had become more complicated as a result.

Andrew Megson, CEO of My Pension Expert, said: “Truss’ reign as Prime Minister has caused a tremendous amount of damage in a short space of time. Her vision was for the UK to punch its way out of trouble, going all-in on growth and productivity to fend off the cost-of-living crisis and impending recession. Unfortunately, she has merely piled more financial worries onto households across the country.

“Financial markets have been put in a spin by wayward economic policy. Inflation is back above 10% and likely to rise further when the now only six-month price cap ends in Spring 2023. And the Bank of England has said that interest rates will rise faster than expected as it seeks a degree of stability.

“Financial Planning has been made very challenging. Take the multiple U-turns over the triple-lock pension – will the Government commit to it or not? How can people map out their financial futures with such inconsistency?

“We can only hope that Truss’ replacement can quickly bring about calmness, clarity, and certainty, allowing people to effectively plan for the future. In the meantime, it is important that those worried about their finances, whether that is unmanageable debt, the performance of investments or their retirement strategies, seek out advice and support.”

Danni Hewson, AJ Bell financial analyst, said: “To use a phrase that has no doubt been exhausted in the past few weeks, markets don’t like uncertainty. And losing another Prime Minister in the midst of a cost-of-living crisis is far from ideal. But Liz Truss’ credibility with markets was shattered when her former Chancellor unveiled the mini-budget which effectively lit the touch paper on an explosive period for politics and demonstrated the importance of taking markets with you when it comes to fiscal policy." 

Dan Boardman-Weston, CEO and chief investment officer at BRI Wealth Management, said: “The resignation of Liz Truss marks the end of a pretty shambolic period of government. The country and markets need certainty, stability and confidence during these highly uncertain times.

"Hopefully the Conservative Party can coalesce around a unifying candidate and government can get back to focussing on how to navigate the country through these turbulent times. Sterling, Gilts and equity markets have all fallen following the announcement whilst it remains unclear who will be the next Prime Minister. Hopefully once the runners and riders are known, markets will react more favourably and we can move into a period of greater political and economic stability.”

Robert Alster, chief investment officer at Close Brothers Asset Management, said: “The impact on markets of Liz Truss’ resignation over the short term will all depend on the fiscal stance of her successor, who they appoint as Chancellor, and how both these events play out in the mini budget at the end of the month. Markets are looking for a more balanced budget and more political stability for the UK, and sterling is rising in the hope that the new Prime Minister will provide both.”

George Lagarias, chief economist at Mazars, said: “Markets may initially have reacted positively to Ms Truss's resignation, but volatility should be expected to continue until the country is again on a sound footing.” 

Stuart Clark, portfolio manager at Quilter Investors, said: “While Liz Truss’ resignation can draw a line under the unsettling policies, U-turns and shambolic operation of the latest government, there will, rightly so, be calls for a fresh election in order to validate the future direction of UK government policy." 

“One silver lining we are seeing is the gilt market and sterling reacting positively to Truss’ departure. However, fiscal policy is still very much up in the air, and with inflation continuing to ravage consumers’ incomes, the economic picture still looks challenging and will for some time, regardless of who sits in No.10.”