The Anvil Group Ltd. Blog Situation Update - Rishi Sunak appointed prime minister following political and economic turbulence in the UK

SummaryRishi Sunak was appointed by King Charles III as Prime Minister of the UK on 25 October.Sunak's appointment came after the economic policies of Liz Truss eroded her authority, causing her to step down on 20 October.Markets reacted positively to the appointment of Sunak, whom they perceive as more fiscally responsible than his predecessor.Sunak may find it challenging to resist calls for a general election having been appointed without a vote among MPs, party members, or the general public.Many of Sunak's precise policies remain unclear after he was largely silent during the nomination process.SituationOn Tuesday, 25 October, Rishi Sunak was appointed by King Charles III as Prime Minister of the UK after being selected as leader of the governing Conservative Party the previous day. Sunak's appointment shortly followed a statement by his predecessor, Liz Truss, announcing her intention to resign after a turbulent period in office lasting 45 days. Her resignation sparked a rapid leadership competition, which Sunak won by default as the other candidates dropped out during the nomination process.The ability of former Prime Minister Liz Truss to govern effectively rapidly deteriorated after she, alongside her then chancellor, Kwasi Kwarteng, drafted a so-called mini budget comprised of tax cuts that were considered as the flagship policies of the Truss premiership. However, as the policies were expected to be funded by an expansion of borrowing, the budget led to a fall in the value of the pound and an increase of government borrowing costs as the yields on 10-year gilts rose. Meanwhile, some lenders began suspending mortgage products as market volatility meant they could not be effectively priced.The Bank of England embarked on a 65-billion-pound bond-buying programme to limit the impact on the market, which could have left some pension schemes at risk of insolvency and without cash to pay for collateral had action not been taken. Kwarteng was subsequently dismissed from his role and replaced with Jeremy Hunt, who reversed large portions of the mini budget in an effort to calm the markets. However, some Conservative Members of Parliament (MPs) questioned the economic and political decision-making capacities of Prime Minister Truss, with several of them publicly calling for her to resign and more reported to have expressed similar views in private.The authority of Truss to govern was further eroded following the resignation of Home Secretary Suella Braverman, coupled with a disorderly vote on fracking in the House of Commons. As Truss announced her intention to resign, she suggested that it was unfeasible to implement her plan for government, thus making the position untenable. In order to reduce the level of political uncertainty brought about by the resignation of Truss, a rapid leadership selection process was initiated by the Conservative Party.Rishi Sunak was the only candidate to formally enter the competition, which followed a short nomination process whereby prospective contenders needed to secure support from 100 other MPs. Former Prime Minister Boris Johnson was widely reported to have sought a return to the role, but his campaign stalled during the nomination stage after he achieved approximately 58 public supporters, although more reportedly backed him in private. Johnson subsequently pulled out of the process late on 23 October, and Leader of the House of Commons Penny Mordaunt withdrew her bid immediately prior to the nomination stage's conclusion after it emerged that Sunak had the backing of approximately 193 MPs, more than half of the parliamentary party.Upon taking office, Rishi Sunak outlined that the country faces a "profound economic crisis", caused in part by the COVID-19 pandemic alongside the conflict in Ukraine, while he admitted that some fiscal mistakes were made during the premiership of his predecessor.