Rishi Sunak, the new British Prime Minister, has his task cut out for him as he inherits an economy that’s staring at severe recession, with inflation at a four decade high, soaring interest rates, and depressed consumer sentiment. Mr Sunak, who in his formal announcement on running for the top job said he wants to fix the economy, is a former Finance Minister of the UK, and markets, which felled his predecessor Liz Truss, have so far taken a favourable view of him.
Even though the incoming PM hasn’t so far detailed his plans to steady the ship, his earlier warning while running for Conservative Party leader against Ms Truss — that the outgoing administration’s fiscal measures would push Britain’s economy to the brink of collapse — has calmed rattled nerves in the market.
News agency AFP earlier reported that European stocks and the pound climbed as markets awaited confirmation of Mr Sunak’s elevation.
Prime Minister Liz Truss’s brief time in office will carry a sizable price tag for the UK economy, according to Bloomberg Economics.
Gross domestic product is likely to be about 2 per cent smaller next year relative to the forecast before her government unveiled controversial tax cuts on September 23, new projections released on Monday show.
That leaves the economy on track for a contraction of 1.4 per cent in 2023, compared to 0.5 per cent growth predicted in early September, Bloomberg said.
The outlook for the UK’s credit score was revised to negative by Moody’s Investors Service on Friday. The rating firm said the change in the outlook was driven by “heightened unpredictability in policymaking” amid weaker growth prospects and high inflation and “risks to debt affordability from likely higher borrowing.”
Ms Truss’s policy U-turns, most significantly scaling back a cap on rising energy prices and a big boost in borrowing to pay for massive unfunded tax cuts, crashed the pound, which is now hovering close to the dollar in value.
Fresh data also showed Britain’s economic downturn has worsened in October, with private-sector output at a 21-month low.
Lizz Truss resigned as Prime Minister of the UK last Thursday after just 44 days at the top post. She had succeeded Boris Johnson on September 6 after a weeks-long campaign against Tory rival Rishi Sunak.