Rishi Sunak becomes UK Prime Minister amid economic and political crisis

Mr. Sunak said he would keep the current Secretary of the Treasury, Jeremy Hunt, who intervened for Rolling back Ms Truss’ tax cut plan and restore market confidence.

Britain’s first Hindu leader vows to repair damage caused by disaster Experience in British Reaganomics From his predecessor Liz Truss,

who was forced to leave office After markets were spooked by massive unfunded tax cuts and generous subsidies for household energy costs.

“Some mistakes were made. Not born out of bad faith or bad intentions. Quite the opposite in fact, but mistakes nonetheless. I have been elected as my party leader and prime minister, in part to fix them,” Mr. Sunak said, standing in front of Downing Street. “I will put economic stability and confidence at the center of this government’s agenda.”

Mr. Sunak takes control of the Conservative Party, which has had the lowest rating in opinion polls for decades. Analysts say he will have to orchestrate one of the greatest political changes of modern British political history if he is to lead them to victory during an election expected in 2024.

Mr Sunak moved quickly on Tuesday to install the Conservative Party. He appointed deputies from the various warring factions to senior government positions in a bid to rebuild some unity in a party that toppled its three previous prime ministers in many years. Almost all senior appointments were members of the Cabinet of the former Prime Minister

Boris Johnsonwho was prompted by a partisan rebellion to resign in July.

In a sign of the challenges facing Mr. Sunak, the new prime minister broke with tradition and had no allies in Downing Street applauding him in the building, highlighting the dark economic times the nation has faced as he prepares to oversee some tough decisions to bridge the government’s estimated £40 billion budget shortfall. That is the equivalent of $45 billion.

“I will unite our country not with words, but with action,” said Mr. Sunak. “I will work day in and day out to deliver you.”

President Biden congratulated Mr. Sunak. “Together, I look forward to strengthening our cooperation on issues critical to global security and prosperity, including continuing our strong support for Ukraine,” the president said on Twitter.

Mr. Sunak, 42 ​​and the youngest British leader in more than 200 years, is faced with a frightening incoming mail. The British people struggle with Cost of Living Crisis As the inflation rate reached 10.1%, due to higher energy costs due to The war in Ukraine. With financial markets now worried about the stability of the British government’s finances, Mr Sunak will have to restore market confidence through a combination of politically harmful spending cuts and tax increases, which are likely to exacerbate the recession and do more damage to income, analysts say.

The government is due to set spending cuts on Monday, just days before the Bank of England is expected to raise interest rates as well.

“It’s going to be a tough time for the economy for whoever is in power,” said Jill Rutter, a former government official and senior UK research fellow at Changing Europe, a think-tank. “It would be very difficult with any government to go through with this and the voters say, ‘That was great.’”

Investors welcomed the end of Ms Truss’ government and the shift in policy toward more fiscal caution. The pound fully recovered from the selling after the tax cut was announced on September 23, which saw the pound drop briefly to a record low of $1.0349. The pound was trading at $1.1480 on Tuesday, nearly 2% above the pre-budget level.

British government bonds, which have been at the center of the recent turmoil in the UK market, have been organized a strong rally That continued on Tuesday when Mr. Sunak took office. The UK 10-year Treasury yield was at 3.647% on Tuesday, well below the 4.643% high set earlier this month, according to Tullett Prebon data. Yields rise as prices fall.

“It helps to have a solution, at least for now, to the frenzy of the last few weeks,” said Fraser Lundy, head of fixed income public markets at Federated Hermes in London. “Today and yesterday is the first time you can start thinking in weeks instead of days. Maybe in the coming weeks you can start thinking in months.”

But he added that as investors start to take a longer view, they may not like what they see in the UK economy. “As the days go by, I think people will very quickly change their attention from that crazy period of crisis to watching the Bank of England, watching the economic picture. It doesn’t look great to be honest,” he said.

Mr. Sunak’s opening statement came just over an hour after Ms Truss defended her vision for a low-tax, high-growth economy.

As the Roman philosopher Seneca wrote: “We dare not do things because things are difficult. And she said in a farewell speech outside Downing Street before handing over her resignation to King Charles, for we dare not call it difficult. “We simply cannot afford to be a low-development country where the government is taking an increasing share of our national wealth.”

Polls this week showed Ms Truss has the lowest approval rating of any prime minister in the modern era, with one poll giving her a 6% approval rating.

Matthew Goodwin, a professor of politics at the University of Kent, said the Conservative Party was “in free fall and I don’t know if it has a parachute or not”.

In his change of cabinet, Mr. Sunak kept Secretary of Defense Ben Wallace in office as well as Secretary of State James Cleverly. Suila Braverman, who is popular in the party’s libertarian wing and advocates for strict immigration restrictions, has been appointed Home Secretary.

Mr. Sunak inherits a political machine accustomed to rapid rebranding. The Conservative Party, founded in 1834, is one of the oldest and most successful electoral franchises in the world. Its success lies in its ability to shed its skin frequently and re-emerge to appeal to the ever-changing needs of its constituents.

The past 12 years of Conservative government are a case in point. Under Mr. Sunak’s leadership, the party will have completed a full ideological circle that began when David Cameron took office in 2010 as a liberal and Malian social conservative, as his government attempted to reform the country’s finances after the 2008 financial crisis. After the Brexit vote in 2016 Theresa May tried to launch the party in a new socially conservative direction. Its successor, Mr Johnson, reshaped it into a more populist franchise as it passed Brexit and entered a period of state intervention and high taxes. Ms. Truss took charge and quickly tried to disentangle it with an unsuccessful shift toward free markets and lower taxes.

Mr. Sunak is now expected to return to the Cameron-era focus on deficits with a degree of social liberalism, embracing issues such as climate change. It is unclear whether voters will buy the last Tory brand.

Rutter remembers being in government when the Conservatives succeeded in realigning their economic policies after the “Black Wednesday” of 1992, when speculator George Soros and other hedge funds forced sterling to break its currency peg to European currencies. Despite their best efforts, voters never completely forgave the Conservatives, and later spent 13 years out of office. Having worked so hard to rebuild their brand as an economist after 2010, the Conservatives “had the premium of economic efficiency, and Truss was able to move past that,” Ms Rutter said.

In a speech in February, Mr. Sunak, then Chancellor of the Exchequer, offered his views on the challenges facing the UK and other Western economies as economic growth sluggish and productivity stagnated. He warned that politicians’ failure to create conditions for faster growth would undermine public support for free market economies and democracy in a world where Authoritarian regimes like China They are on the march.

But he also cautioned against what he described as two misconceptions about how to stimulate growth. The first is to increase government spending, regardless of its effect on borrowing and debt. The second is the unfunded tax cuts, the idea that tax cuts will unleash growth that will eventually give the government more money from the dynamic economy to spend on social services and investment. The latter idea is exactly what his predecessor, Mrs. Truss, tried and failed to implement about seven months after Mr. Sunak’s speech.

“The pitfall of these two ideas – that we can simply boost the economy through public spending, or supposedly self-financed tax cuts – is that they both represent very easy and tempting answers,” he said. “It is neither serious nor credible; no one is going to alter growth alone. Because they ignore the trade-offs inherent in economic policy, they are both irresponsible.”

Instead, Mr. Sunak identified three areas he called capital, people and ideas that aim to get companies to invest more. He said that the capital invested by British companies averaged 10% of annual economic output compared to an average of 14% in the OECD club of rich countries. He pledged to help drive innovation by creating the right tax and regulatory environment for business to boost capital investment and spending in research and development, and called for more vocational training for employees already in the workforce, and a visa regime to attract entrepreneurs and highly skilled workers.

He said, “Less ‘we build it and they will come’ and more ‘Let them come and build it’.”

Mr. Sunak will have to overcome opposition from lawmakers within his party to increased immigration of any kind.

On Monday, Mr. Sunak warned lawmakers during a private meeting that they had no choice but to cooperate if they wanted to avoid losing the upcoming election, according to people present. One person added that he hoped the Tory MPs’ desire for self-preservation would trump their own ideological inclinations.

Mr. Sunak inherits a healthy majority in Parliament after Mr Johnson’s 2019 election victory and so should be free to pass legislation as long as he can contain the rebellions.

Mr Sunak said he would stick to the 2019 statement that helped Mr Johnson secure his electoral victory. This included a pledge to help the left-over parts of the country and eradicate illegal immigration. He said, “I will keep her promise.”

— Chelsea Dolaney contributed to this article.

write to Max Colchester at [email protected] and David Luhnow at [email protected]