LONDON – Former chancellor Rishi Sunak, who warned that Liz Truss’s economic plans for Britain were “a myth”, won the race to succeed her as prime minister on Monday, taking over the world’s sixth-largest economy at a time of deep recession. and political unrest.
Mr Sunak will officially enter Downing Street after his only rival for the job, former defense secretary Penny Mordaunt, said on Twitter she was withdrawing from the race. “My beard fully supports me,” he wrote.
Mr Sunak’s rise to Britain’s highest office is a historic moment. The grandson of Indian immigrants to Britain, the 42-year-old is the first person of color in Britain and the first Indian to lead the country. But his success will depend on how well he manages the growing problems of the UK economy, as high inflation and a looming recession fuel a growing sense of despair.
The former hedge fund manager comes with a mandate of calm to the ruling Conservative Party after a period of unprecedented chaos that will see the country run by three prime ministers in seven weeks – the first in Britain on Sunday Night, his main rival. to do so, the colorful but controversial former leader Boris Johnson dropped out of the leadership race on the grounds that he could not unite the party.
Mr Sunak takes over from Mrs Truss after her flagship economic program to stimulate the economy with tax cuts amid rising inflation was rejected by investors, becoming the shortest prime minister in UK history and the Bank of England to stabilize the price of UK government debt. interfere in bond markets.
On Monday, financial markets reacted positively to the victory of Mr. Sunak. Government debt yields fell as investors speculated that Mr. Sunak, a veteran Treasury official, would oversee cuts in public spending to shore up the country’s finances.
The decision caps Mr. Sunak’s second bid for the premiership in months. He campaigned over the summer to become UK leader but lost to Ms Truss. During the campaign, Mr. Sunak criticized Ms. Truss’s plan to borrow money for immediate tax cuts. He said Britain’s high inflation, currently at 10.1%, had to be tackled before any tax cuts.
“Liz’s plans promise the Earth to everyone. I don’t think you can have your cake and eat it too,” he said in August.
Mr. Sunak lost, but his arguments later won. Ms. Truss had to turn her expertise to use unfunded tax cuts to boost economic growth.
While Mr Sunak’s rise will calm markets for now, his government will face tough and unpopular decisions on spending. Britain’s Treasury is expected to outline plans on October 31 to cut spending and possibly raise some taxes to plug an estimated £40 billion, or $45 billion, deficit in the public finances. “The choice the party makes now will decide whether the next generation of British people will have more opportunities than the last generation,” Mr Sunak said on Sunday.
His financial warning is likely to reduce pressure on the Bank of England to raise its key interest rate from 2.25%. Market expectations for a BOE interest rate hike next year fell from 6% to 5% in the days after Ms Truss scrapped her economic plan.
However, the broader outlook is grim. Mr. Sunak is likely to face a winter of discontent as inflation, fueled by rising energy costs from the war in Ukraine, continues to outpace wages and a recession that economists say could last a year. The early stages of his presidency are likely to be marred by labor strikes and questions about whether power cuts are necessary as Russia curbs gas exports to Europe.
Compared to most rich countries, the UK economy has not yet returned to its pre-pandemic size. The UK economy grew very little in the three months to June, leaving it 0.2% smaller than in the last quarter of 2019, the last before the spread of the Covid-19 virus.
“Growing political and economic uncertainty has led to a slowdown in business activity not seen since the 2009 global financial crisis, excluding the months of pandemic lockdowns,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Mr. Sunak also faces a potentially insurmountable challenge: unifying a party that has been at war with itself for years. The Conservative Party is at a record low in the polls against the opposition Labor Party. According to the latest Opinium poll, 23 percent of Britons voted for the Conservatives and 50 percent for Labour. Pollsters believe the scale of the deficit, coupled with the fact that the Tories will be seeking a record fifth term in office at the next election in 2024, is likely to be insurmountable.
Mr Sunak, not a known political operator, must find a way to unite lawmakers who hold polar opposite views on the direction the UK economy should take. After Britain’s exit from the European Union, conservative lawmakers are divided between embracing less regulation, smaller government and free trade, or protectionism and more government intervention as an aging population puts more pressure on public services.
Mr Sunak has previously campaigned on fiscal conservatism, strict immigration restrictions and support for tackling climate change. His foreign policy outlook is less defined. While he has expressed support for helping Ukraine fight Russian aggression, he may need to cut military spending to get finances under control. Mr Sunak is a pro-Europe skeptic who backed the 2016 vote to leave the EU, but is seen as more conciliatory towards Europe than either Ms Truss or Mr Johnson.
Mr Sunak represents an unusual combination of both continuity and innovation at the height of British politics. He grew up in the south of England to parents of Indian origin, his father was a doctor and his mother ran a pharmacy. Mr Sunak studied at Oxford University in Winchester – an elite private school that has produced several British Prime Ministers – before taking a job at Goldman Sachs..
He is married to Akshata Murthy, the daughter of a billionaire Indian businessman. The couple met while Mr. Sunak was studying for his MBA at Stanford. He founded a hedge fund called Theleme Partners.
As the richest member of the House of Commons, Mr Sunak may find himself in the uncomfortable position of explaining his support for spending cuts that could make life harder for the working class. Supporters say he will argue that sound finances will enable the UK economy to improve Britain’s competitiveness and create wider prosperity in the future.
In 2015, Mr. Sunak was elected to parliament in Yorkshire, a predominantly white northern English county. Mr. Sunak took an oath before the monarch on the Hindu book, the Bhagavad Gita, and had to explain in Parliament to many of his peasant constituents that he does not eat beef. But he quickly became famous and moved to a manor house in Yorkshire.
Mr. Sunak’s star in the conservative party rose quickly. He has come out in favor of Brexit, which he says could allow Britain to become more competitive outside the European Union. The move ran afoul of then-prime minister David Cameron, but put him in good stead with Mr Johnson, who promoted Mr Sunak as a rising star. In 2019, he was given a senior position in the Treasury and placed his assets in a blind trust to avoid inappropriate accusations. A year later, he was appointed Chancellor of the Exchequer.
It was during the Covid-19 pandemic in 2020 that Mr. Sunak gained national attention when he created a job protection program within days. The decision to pay a percentage of people’s wages while they were unable to work during the siege was well received.
The former financier proved a good foil for the larger-than-life Mr Johnson. Unlike Mr. Johnson, Mr. Sunak paid attention to detail. People who have worked with him say he diligently reads briefing notes and tests civil servants. During the pandemic, he repeatedly questioned the need for closures. Mr. Sunak also has a small side. A Star Wars fan shocked a group of school children by telling them he had a ‘coke problem’. Then he went on a one-minute monologue about his favorite brand of Coca-Cola,
which is made from Mexican sugar cane.
But by last summer, Mr. Sunak and Mr. Johnson were at odds. Mr Sunak successfully lobbied for tax increases to help pay for Britain’s National Health System. But many in the Tory ranks questioned the fact that the tax burden was at its highest level for 70 years. Meanwhile, Mr Johnson has been embroiled in a “party scandal” after he was fined by police for attending his Downing Street birthday party during the Covid-19 lockdown. Mr. Sunak was also fined for his participation.
Mr. Sunak was involved in a scandal of his own. His wife, Mrs Murty, had to change her tax arrangements this year after admitting that she had benefited from tax rules that allowed her to pay no UK tax on her worldwide income. He says he changed his status and now pays UK tax on this worldwide income. The crisis has prompted some Tory lawmakers to question whether Mr Sunak is too wealthy to connect with the party’s blue-collar voters.
But as more scandals engulfed Mr. Johnson, Mr. Sunak moved to oust him. He announced his resignation last July, prompting further resignations that made Mr Johnson’s position untenable. Within few days a beautiful website “Ready4Rishi” went online.
Mr. Sunak’s apparent desire to oust Mr. Johnson soon played against him. In the subsequent leadership contest, Mr. Sunak won the support of more lawmakers, but failed to convince the 170,000 members of the Conservative Party.
This time, after Ms. Truss resigned, many key lawmakers quickly announced their support for Mr. Sunak, preventing another vote among party members.
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