Britain's next prime minister, former finance chief Rishi Sunak, is inheriting a British economy that was headed for recession even before the recent turmoil sparked by Liz Truss.
Outgoing Prime Minister Truss resigned after her budget of debt-financed tax cuts sent shockwaves. through the markets causing the pound to collapse. That prompted the government to change most of its budget, including cutting a ceiling on skyrocketing energy bills that have been instrumental in causing a cost-of-living crisis for tens of million Britons.
Data on Monday showed that Britain's economic recession worsened in October, with private sector manufacturing at a 21-month low. said Chris Williamson, chief business economist at S&P Global Market Intelligence, who helped compile the numbers.
"Increasing political and economic uncertainty has caused business activity to fall at a rate not seen since the 2009 global financial crisis, excluding months of the pandemic lockdown. Williamson added that forthcoming data is likely would show that the UK is already in recession.The S&P Global/CIPS Composite Purchasing Managers' Index for the UK was 47.2 in October, down from 49 in September.
"SUNAK STABILITY" Truss resigned last Thursday after just 44 days as Prime Minister. He had replaced Boris Johnson on September 6 after a week-long campaign against Sunak, a Conservative rival. It happens to Johnson that when the public debt had already skyrocketed from COVID-19 interventions, the tax cuts promised by Truss were the wrong policy. He was right when the budget plunged the pound to an all-time low near parity at $ and sent government bond yields soaring.
As Sunak is seen as stabilizing markets, the British pound rose and yields fell on Monday. "Investors clearly expect Sunak to stabilize the economy and the political situation, although at this stage it is difficult to determine which is the more difficult task," he said. Danni Hewson, financial analyst at AJ Bell.
The Bank of England is due to announce another big rate hike at a regular monetary policy meeting next week. This will put more pressure on borrowers, including homeowners, whose mortgage rates have risen in the wake of the government's expensive budget.
Shevaun Haviland, CEO of the British Chambers of Commerce, urged Sunak to also help businesses struggling with huge energy bills.” The political and economic uncertainty of recent months has severely damaged British business confidence and it is now time to end will be," it said in a statement after Sunak's new role was confirmed. "The new prime minister must be firmly in charge to help the economy through the difficult conditions that lie ahead."