LONDON – Former chancellor Rishi Sonak, who warned Liz Truss’s economic plans for Britain were “mythical”, won the race to succeed her as prime minister on Monday, taking over the world’s sixth-largest economy at a time of deep financial crisis. and political turmoil
Mr Sonnock will officially enter Downing Street after his only remaining rival for the post, former defense secretary Penny Mordant, announced on Twitter that she was withdrawing from the race. “Rishi has my full support,” she wrote.
Mr. Sunak’s rise to the top position in the UK is a historic moment. The 42-year-old, who is the grandson of Indian immigrants to Britain, will be Britain’s first person of color and the first Hindu to lead the country. But his success will depend on how he manages the growing challenges to the UK economy as high inflation and a pending recession create a growing sense of desperation.
The former hedge fund manager arrives with a mission to calm his arch-rival Conservative Party after a period of unprecedented turmoil that has seen the country run by three prime ministers in seven weeks – a first for Britain on Sunday night. To do so, Boris Johnson, the colorful but controversial former leader, withdrew from the leadership race on the grounds that he could not unite the party.
Mr Sonnock replaces Mrs Truss, who is the shortest-serving prime minister after investors rejected her landmark economic plan to stimulate the economy with tax cuts amid soaring inflation, sending the pound to record lows. British history became. and the Bank of England to intervene in bond markets to stabilize the price of British government debt.
On Monday, the financial markets reacted positively to Mr. Sunak’s victory. Yields on government debt fell as investors bet that Mr. Sonak, a veteran Treasury official, would oversee cuts in public spending to shore up the country’s finances.
The decision is Mr. Sunak’s second attempt to secure his position as prime minister in the past few months. He campaigned to become UK leader in the summer but lost to Mrs Truss. During the election campaign, Mr Sonak criticized Ms Truss’ plan to borrow funds for immediate tax cuts. He said Britain’s high inflation, currently at 10.1%, must be tackled first before any tax cuts.
Liz’s plans promise everyone the land. “I don’t think you can have your cake and eat it.” He said in August.
Mr. Sunak lost, but his arguments later won. Ms Truss was forced to scale back her experiment to use unfunded tax cuts to stimulate economic growth.
While Mr. Sunak’s emergence will calm markets for now, his government will face tough and unpopular spending decisions. Britain’s Treasury is expected to present plans on Oct. 31 to cut spending and potentially raise some taxes to plug an estimated 40 billion pounds ($45 billion) public budget deficit. Mr Sunak said on Sunday: “The choice the party makes now will decide whether the next generation of Britons will have more opportunities than before.”
His fiscal prudence is likely to ease pressure on the Bank of England to sharply raise its key interest rate from 2.25 percent. Market expectations for a peak BOE interest rate next year fell to 5% from 6% in the days after Mrs Truss scrapped the economic plan.
The broader outlook, however, is grim. Mr Sonak is likely to face a winter of discontent as inflation, fueled by rising energy costs from the war in Ukraine, rises faster than wages and a recession that economists think could last a year takes hold. The early stages of his tenure are likely to be marked by labor strikes and questions about whether blackouts are needed because of Russia’s restrictions on gas exports to Europe.
Unlike most other rich countries, the UK economy is still not back to its pre-pandemic level. Britain’s economy grew very little in the three months to June, down 0.2% from the final quarter of 2019, the last before the outbreak of the Covid-19 virus.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Increasing political and economic uncertainty has caused business activity to decline at a rate not seen since the global financial crisis in 2009. Epidemic quarantine should be removed.
Mr Sunak also faces another potentially insurmountable challenge: unifying a party that has been at war with itself for years. The Conservative Party is at its lowest level in the polls against the opposition Labor Party. A recent Opinium poll found that 23% of Britons voted Conservative to 50% Labour. Pollsters think the scale of the deficit, coupled with the fact that the Conservatives will seek a fifth term in office at the next election in 2024, is potentially insurmountable.
Mr Sunak, not a renowned political operator, will have to find a way to bring together lawmakers who hold opposing views on the direction the UK economy should take. In the wake of Britain’s exit from the European Union, Conservative lawmakers are divided between embracing lower regulation, smaller government, free trade, or protectionism and more government intervention, as an aging population puts more pressure on public services.
Mr Sonak has previously campaigned on both 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 counter Russian aggression, he may have to cut military spending to get finances under control. Mr Sonnock is a euro skeptic – having supported a vote to leave the EU in 2016 – but is seen as more conciliatory towards Europe than either Ms Truss or Mr Johnson.
Mr Sunak represents an unusual combination of continuity and novelty at the top of British politics. He grew up in the south of England to parents of Indian descent, 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 married Akshata Murthy, the daughter of a billionaire Indian businessman. The couple met when 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 could find himself in the awkward position of having to explain support for spending cuts that could make life harder for the working class. Supporters say he will argue that a healthy financial position will allow the UK economy to improve competitiveness to create wider prosperity in the future.
In 2015, Mr. Sunak was elected to parliament in Yorkshire, a predominantly white agricultural region in the north of England. Mr Sunak recited his parliamentary oath to the king based on the Hindu scripture, the Bhagavad Gita, and had to explain to many of his farming constituents that he does not eat beef. But he quickly proved popular and moved to a Yorkshire mansion.
Mr Sunak’s star rose rapidly in the Conservative Party. He backed Brexit, which he said could allow Britain to become more internationally competitive outside the EU. The move ran afoul of the then prime minister, David Cameron, but it put him in good stead with Mr Johnson, who promoted Mr Sunak as a rising star. In 2019, he was given a senior role at the Treasury and placed his assets in a blind trust to avoid false accusations. A year later, he was appointed as the Minister of Treasury.
It was during the 2020 Covid-19 pandemic that Mr. Sunak came to the national attention and he set up a job protection program within days. The government’s decision to pay a percentage of people’s wages while they were unable to work during quarantine was welcomed.
The former financier was a good foil for the older Mr. Johnson. Unlike Mr. Johnson, Mr. Sonak paid attention to detail. People who have worked with him say he patiently reads briefs and cross-examines civil servants. During the pandemic, he repeatedly questioned the need for quarantine. Mr. Sunak also has a dignity. A Star Wars fan surprised a group of school children by telling them he had a ‘coke problem’. He then did a minute-long monologue about his favorite brand of Coca-Cola,
which is made from sugar cane in Mexico.
Last summer, however, Mr. Sonak and Mr. Johnson had a falling out. Mr Sunak had successfully lobbied for increased taxes to help pay for Britain’s nationalized healthcare system. But many in conservative ranks questioned the fact that the tax burden was at its highest level in 70 years. Meanwhile, Mr Johnson was embroiled in a “Partygate scandal” in which he was fined by police for attending his Downing Street birthday party during the Covid-19 lockdown. Mr. Sunak was also fined for his presence.
Mr. Sunak was caught in a scandal of his own. His wife Mrs Murty was forced to change her tax arrangements this year after admitting she was taking advantage of tax rules that allowed her to pay no UK tax on her worldwide income. He says he has changed this situation and now pays UK tax on this worldwide income. The scandal led some Tory lawmakers to question whether Mr. Sunak was too rich to connect with the party’s blue-collar voters.
But as more scandals surfaced about Mr. Johnson, Mr. Sonak moved to oust him. Last July, he announced his resignation, setting off an avalanche of further resignations and making Mr Johnson’s position untenable. Within days a fancy website “Ready4Rishi” went online.
Mr. Sunak’s apparent eagerness to oust Mr. Johnson soon backfired. In the subsequent leadership race, Mr Sonak won the most support among lawmakers but failed to convince the 170,000 Conservative Party members.
This time, after Ms. Truss resigned, many key lawmakers quickly announced their support for Mr. Sonak, preventing a re-vote among party members.
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