<style>.lazy{display:none}</style>3 Challenges Rishi Sunak  faces in stabilizing the UK economy | Money Investors
Rishi Sunak UK Economy

Conservative MPs have sworn in Rishi Sunak as the new UK Prime Minister. He now must reassure investors, rally his party and win back voter confidence.

After four days of shocks, Rishi Sunak has been named leader of the Conservative Party and, by extension, has become the new British Prime Minister.

This is a sharp change of course for the former foreign minister. Just seven weeks earlier, he lost to Liz Truss in the party’s leadership race by a 43% to 57% margin. But the celebrations of his appointment will not last long, as the new prime minister faces a sobering task that must appease three different groups:

  1. First, investors must be assured that public finances are on a sustainable path. Markets have reacted positively to his appointment because of his fiscally conservative reputation and his previous experience as chancellor. But this credit must be consolidated with the presentation of the fiscal plan scheduled for October 31. Reports suggest that tens of billions of pounds will be raised by reforming capital gains taxes, in addition to extending the freeze on income tax thresholds and rebates. It would also make sense to keep Jeremy Hunt as chancellor for the sake of stability.
  2. Second, it must bring together the warring factions of Conservative MPs. Both the moderate and right-wing factions of the party clashed with each other during the leadership process this summer. And tensions flared further when Liz Truss appointed her loyalists to key positions in her government and purged those who had supported her rival. A cabinet reshuffle that better reflects the party’s ideological spectrum would help promote harmony among Conservative MPs.
  3. Third, it must win back voters ahead of the next general election. Polls currently point to a 32-point difference between the Conservatives and the Labor Party. Reversing this deficit will perhaps be its greatest challenge. In part because of the extent of the reputational damage, his party has suffered in the past month. But also because many of the headwinds the UK faces come from abroad and are therefore out of its control.

It will be difficult to placate all three at the same time. Few things are as unpopular with voters as tax hikes and fiscal austerity, although doing otherwise would turn the prime minister against investors.

As a former Chancellor, you will be keenly aware of the need to reduce UK borrowing costs by lowering spreads. Therefore, Sunak has no choice but, to be honest about the need to make difficult decisions for the country. It’s a tough story to sell, especially as the general election approaches.

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