The UK’s next prime minister, Rishi Sunak, will succeed Liz Truss, whose 44-day term was the shortest in British history. The severity of the situation in the UK is reflected in Sunak’s remarkable reappearance after over two months, when he came in second to Truss. The rapid action taken by the Conservative Party against Truss, whose bad economic policies made the market upheaval worse, demonstrates the high hopes the party has for Sunak. The country’s economic situation has been described as ‘deep’ by the former chancellor, who also pledged to fight tirelessly to restore the British people’s standard of living.
Sunak faces significant obstacles.
Economy: Slowing growth and inflation
Assuring the populace and the markets that he has strategies in place to address the inflation and energy problems will be Sunak’s first challenge. Things are getting more expensive for UK citizens since inflation there is now at a decades-high of over 10%. He has pushed for stringent policies to restrain inflation, including increased taxes and restrained government expenditure. Sunak will need to be aware of the slowdown, though, because the ruling party cannot afford a recession if there is too much tightness. According to the IMF, the UK will increase by just 0.3% in the next year. This might be problematic for Sunak since ongoing high inflation and slow growth won’t help the situation.
Energy crisis
Energy supply to Europe has been hampered as a result of Russia’s invasion on Ukraine and the sanctions the West imposed on Moscow. Annual home energy costs in the UK have increased by three times, from £1,277 to £3,549, in only one year. Energy expenses and prepayment metre payments have been restricted by the Truss administration to £2,500 per year until next April.
The demand for electricity will increase as winter approaches and more people will need to stay warm, driving up prices. Sunak will have the challenge of keeping prices flat or down for consumers while maintaining awareness of the fiscal position as he will not have enough capacity for the debt, a move his predecessor made that alarmed investors and sent the markets lower.
Prior to the September elections, Sunak had outlined a proposal that included increasing revenue through an energy tax. He had previously stated that, as a last resort to get through this winter, he was ready for some limited, temporary, one-time borrowing. He had stated, ‘Given the continued rise in energy costs, it is also probable the government will earn additional money through the Energy Profits Levy that I established’.
Political sway
Sunak’s third major problem is to restore public trust in the Conservative Party, which is losing ground to the Labour Party in polls of public opinion. The popularity of the ruling party has fallen to a historic low of 14% as a result of the record-breaking three prime ministers in three years; if elections were conducted now, only this percentage of people would support the Conservative Party. Sunak may encounter difficulties in the House of Commons as a result of the opposition’s resurgence and the ruling party’s collapse.
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