Worried business leaders have cautiously welcomed Rishi Sunak as prime minister amid signs that the UK economy is heading for a recession after Liz Truss’s brief presidency eroded confidence among company chiefs.
The latest snapshot on the economy among business leaders fell in October to the lowest level since April 2020, with the early stages of the Covid-19 pandemic, high inflation, political uncertainty and rising borrowing costs weighing on growth.
Industry leaders said the new prime minister needed to take urgent steps to repair battered business confidence. Borrowing costs in global markets fell as the British government heard Sunak had won the Conservative leadership, with the pound little changed against the dollar.
Tony Danker, executive director of the CBI lobby group, said the former chancellor had “a track record of seeing the economy through tough times” during the Covid pandemic. “[He] It is coming at a very uncertain time with tough choices ahead of us.
“The new Prime Minister will lose no time in easing the impact of the market turmoil on households and businesses and helping to restore fiscal credibility.”
In his short victory speech, Mr Sunak said he recognized the “great economic challenge” Britain was facing and said: “Now we need stability and unity”.
The pound fell to record lows the day after the minimum budget, but slowly recovered as the government scrapped the plan and traded at around $1.13 against the dollar on Monday. The yield – or interest rate – on 30-year UK government bonds fell 0.3 percentage points to 3.8%, close to levels seen a month ago before Kwasi Kwarteng’s dire physical statement.
Sunak will take over as prime minister after meeting the monarch at Buckingham Palace, possibly as early as Tuesday, by which time Truas will have served 50 days in the job.
Chevan Haviland, director general of the British Chambers of Commerce, said the appointment came after months of political and economic turmoil that had “taken a toll”. We can’t see any further changes in policies – UK businesses believe they need sustainable, long-term economic planning.
Juergen Mayer, the former chief executive of Siemens UK, said he thought the former chancellor was the best candidate to “bring much-needed stability”, but said deep political risks remained.
He has to fight the ERG rightist faction of his party which has caused untold economic destruction. Every Prime Minister since Brexit has stumbled on this.
The S&P Global/CIPS UK Purchasing Managers’ Index fell to a 21-month low in October, data released on Monday showed, as households and businesses cut spending amid a 40-year high in inflation, reflecting growing fears of a recession. .
The monthly survey of company executives is the third in a row, with most reporting a slowdown in activity. This includes delays in business investment decisions due to political uncertainty, as well as the risk of higher borrowing costs as the Bank of England raises interest rates.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said: “Along with a decline in political stability, financial market stress and a decline in confidence, these high borrowing costs add to the specter of a worrying UK recession.”
It comes as the government pushes ahead with Chancellor Jeremy Hunt’s announcement of debt relief plans on October 31. Although some experts say the Tory leadership race could delay the announcement, others say that staying on the agreed date will help prevent a sharp increase in interest rates from the Bank of England when it meets on November 3 to decide the cost of borrowing.
Dave Ramsden, one of the bank’s deputy governors, said on Monday that Trident Street had “been involved” in financial matters with the Treasury. The plan, the second budget effective in a few months, is expected to ensure deep cuts in public spending after Karteng’s unfunded promise of tax cuts.
Sunak gained popularity in opinion polls during his time as chancellor during the Covid pandemic, when he approved billions of pounds in spending to help businesses and workers through the health emergency.
However, earlier this year, that declined due to the refusal to support the cost of living. He warned that tough tax and spending choices would be needed before Truss lost the Tory leadership race in the summer.
Investec economist Philip Shaw said: “Trying to win back voters when the economy is facing various problems and tax increases is a completely different matter.”
