LONDON — Rishi Sunak will become Britain’s next prime minister, prevailing in a chaotic Conservative Party leadership race on Monday after his remaining rival for the position, Penny Mordaunt, withdrew. He will be Britain’s third leader in seven weeks and the first prime minister of color in its history.
The 42-year-old former chancellor of the Exchequer who is the son of Indian immigrants, Mr. Sunak won the contest to replace the ousted Liz Truss, who resigned under pressure last Thursday after her economic agenda caused turmoil.
Sunak’s win on Monday came days after Truss’s resignation following her disastrous tax cuts plans and policy U-turns plunged the markets into chaos. The unprecedented economic crisis drew a rare intervention from the Bank of England.
Sunak was to make his first remarks at 2:30pm (13:30 GMT), according to Party official Graham Brady, whose 1922 committee of Tory MPs organised a rapid leadership election following last week’s resignation of Truss.
Rishi Sunak already has experience steering Britain’s public finances through a crisis, but that is unlikely to make tackling the country’s economic challenges any less daunting.
As chancellor of the Exchequer from February 2020 to July this year, Mr. Sunak spent heavily to shield households and businesses from some of the economic fallout from the coronavirus pandemic. Back then, inflation was low and the Bank of England was buying government debt, helping keep interest rates low as borrowing ballooned to pay for the large increase in spending.
Now, Mr. Sunak, who is set to be Britain’s next prime minister, will face a very different economic backdrop: The inflation rate has topped 10 percent, the highest in 40 years and, like many countries, the economy is slowing down and at risk of falling into a recession. Meanwhile, the Bank of England is continuing to raise interest rates to curb inflation, and won’t be there to purchase government debt because starting next month it is planning to slowly sell its holdings of bonds. That means the government will rely more on investors, who have been demanding higher interest rates, than the central bank to buy bonds.
In these circumstances, Mr. Sunak has several urgent issues to resolve. One is how to support households squeezed by rising energy costs, after Russia’s war in Ukraine introduced huge volatility into global energy markets. As things stand, household bills have been frozen from this month through to April at an average of 2,500 pounds ($2,826) a year, but after that the government is expected to develop a cheaper policy to help the most vulnerable households. A similar policy is in place to help businesses for six months.
After setting aside tens of billions of pounds to keep energy bills down, the government is also under pressure to show how it will keep borrowing in check, in an effort to restore Britain’s fiscal credibility in markets. Jeremy Hunt, the finance minister recently installed by Liz Truss but a supporter of Mr. Sunak, is scheduled to deliver a fiscal statement on Oct. 31 that he said will show Britain’s debt falling as a share of national income over the medium term.
To bring down debt levels, “decisions of eye-watering difficulty” on spending and tax will need to be made, Mr. Hunt has said. He said he will be asking every government department to find ways to save money despite their already stretched budgets. At the same time, Mr. Hunt said taxes are likely to rise as well. Mr. Sunak, however, is not obligated to keep Mr. Hunt as chancellor or stick to the current timetable for the fiscal statement, though many analysts expect him to.
At this stage, Mr. Sunak hasn’t revealed details about his economic plan as prime minister but investors appear to be taking the prospect of his premiership in their stride.
The pound is trading at about $1.13, a little higher than it was on Sept. 22 before the tax-cutting plan by Ms. Truss that roiled markets, pushing the pound steeply lower and borrowing costs higher. Government bonds yields have fallen from their recent highs. On Monday afternoon, the yield on 10-year bonds was at about 3.82 percent, after closing at 4 percent on Friday. It’s the lowest level since the September fiscal statement.