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After Rishi Sunak was installed as the United Kingdom's prime minister by King Charles III on Tuesday, 25 October, the new premier said that he had been elected to "fix the mistakes" made by his predecessor, Liz Truss.
Truss' resignation last week as the prime minister triggered a leadership contest in the Conservative Party, and after his rivals – Boris Johnson and Penny Mordaunt – dropped out, Sunak was elected as the Tory Leader.
Let's take a look at the political and financial challenges Sunak faces as he takes up the mantle from Truss.
The first political challenge for Sunak is convincing the British people of his worth. Remember, he does not have the people's mandate.
The Labour Party is making noise on the mandate issue. Angela Rayner, the party's deputy leader was quoted as saying in The Guardian that there should be a general election right away because "the Tories have crowned Rishi Sunak as prime minister without him saying a single word about how he would run the country and without anyone having the chance to vote."
Sunak's second major political challenge is to unite the bitterly divided Conservative Party. After all, his first message to his colleagues as the new party leader and the prime minister was to "unite or die."
Sunak's allies have reportedly said that the new leader would reach out to MPs across the party, which is the opposite of what Liz Truss did when she became PM.
The third challenge is to prepare his party for the 2024 elections. During the contest to replace Johnson, polls showed that Sunak was the only Tory who could beat Labour's Keir Starmer if a general election was held immediately.
The situation for the Conservative Party has worsened since then, given Truss's disastrous plans to tackle the economy.
Indeed, Sunak, who has loudly claimed that he is the man best positioned to defeat Starmer in 2024, will have to remarkably turn around the economy and fix the cost-of-living crisis if the Tories don't want to get wiped out by Labour in the next general election.
When Sunak took over as chancellor of the exchequer in February 2020, he spent heavily to try and protect businesses from major economic challenges from the COVID pandemic.
But that was a different time – inflation was low and the Bank of England, the UK’s central bank, was purchasing government debt, giving the government more spending power.
Now, when Sunak has been named leader of the Conservative Party and moves into 10 Downing Street, he faces a starkly different economic landscape.
Inflation in the UK has reached 10 percent, a 40-year-high and like countless other countries, facing the looming threat of falling into a recession amidst economic slowdowns.
The Bank of England has desperately raise interest rates to fight inflation and has rather planned to slowly sell the government bonds it had purchased. In a scenario like this, Sunak will have to turn more to investors, who’s interest rates are even higher.
First, Sunak needs to find ways to support households amid rising energy prices owed to Russian war-induced volatility in the energy market.
Secondly, after he spends tens of billions of pounds and hopes to keep energy bills down, Sunak is also facing pressure to find effective solutions to keep borrowings in check and restore the UK’s credibility in the markets.
It is important to remember that after Truss and former chancellor Kwasi Kwarteng’s “mini budget,” the UK markets were spooked and took a plunge, with investors constantly losing confidence.
Hunt said that he would ask government departments, who are already stretched thin, to save more money and added that taxes are likely to rise as well. However Sunak doesn’t necessarily need to keep Hunt around as chancellor, or stick to the current timetable for the fiscal statement.
Thirdly, Sunak will have to deal with the pound, which is trading at around $1.13, a little higher than what it was as a reaction to Truss’ tax cutting plan, announced on 22 September, Truss’ plan roiled markets and steeply pushed the pound down, leading to increased borrowing costs as well.
While lower interest rates will comfort Sunak, which could ease spending cuts and tax rises by reducing the amount the Treasury sets aside for interest payments, the to-do list of economic concerns remains hefty.
(With inputs from The Guardian, The New York Times, and Reuters)
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