Anxious business leaders cautiously welcomed Rishi Sunak as prime minister amid signs the UK economy is headed for recession after a sharp drop in confidence among business bosses during Mr. Liz Truss.
The latest outlook for the economy showed that optimism among business leaders collapsed in October to the lowest level since April 2020, during the early stages of the covid-19 pandemic, as intense inflationary pressures, rising political uncertainty and rising borrowing costs weighed on growth.
Industry leaders said the new prime minister needed to take urgent action to help repair battered business confidence. UK government borrowing costs fell in global markets on news of Sunak’s victory as Conservative leader, while the pound was little changed against the dollar.
Tony Danker, CEO of lobbyist CBI, said the former chancellor had a “record of seeing the economy through tough times” during the covid pandemic. “[He] now it comes at a time of great uncertainty with difficult decisions ahead.
“The new prime minister can waste no time in easing the impact of the market turmoil on households and businesses, and help restore fiscal credibility.”
In a brief victory speech, Sunak said he recognized the “profound economic challenge” facing Britain, adding: “Now we need stability and unity.”
The pound fell to record lows immediately after the mini-budget but gradually recovered as the government backtracked on its plans and traded around $1.13 against the dollar on Monday. The yield, or interest rate, on 30-year UK government bonds fell 0.3 percentage point to below 3.8%, retreating to levels close to levels seen before Kwasi Kwarteng’s disastrous tax return. one month ago.
Sunak will formally take over as prime minister after meeting the king at Buckingham Palace, likely on Tuesday, by which time Trus will have served 50 days in office.
Shevaun Haviland, director general of the British Chambers of Commerce, said his appointment came after “hugely damaging” months of political and economic uncertainty. “We can’t afford to see more policy change – UK business needs a long-term sustainable economic plan they can believe in.”
Juergen Maier, former chief executive of Siemens UK, said he thought the former chancellor was the best candidate to “try to bring much-needed calm” but that deep political risks remained.
“He needs to take on the right-wing ERG faction of his party, which has created untold economic damage. Every prime minister since Brexit has stumbled over this.”
The S&P Global/CIPS UK Purchasing Managers’ Index fell to a 21-month low in October, the latest release on Monday showed, reflecting growing recession risks as households and businesses cut spending amid of the highest inflation rates in 40 years. .
The monthly survey of company heads was the third in a row in which the majority reported a contraction in activity. This included delays in business investment decisions due to political uncertainty, as well as concerns about higher borrowing costs as the Bank of England raises interest rates.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “On top of collapsing political stability, financial market stress and falling confidence, these higher borrowing costs will add to worryingly recession speculation. deep in the UK.
It comes as Chancellor Jeremy Hunt goes ahead with preparations for the government to announce debt reduction plans on October 31. Although some experts have suggested that the race for the Conservative leadership could delay the announcement, others say that meeting the agreed date would help avoid a steeper increase in interest rates from the Bank of England when it meets to decide on the costs of loans on November 3.
Dave Ramsden, one of the Bank’s deputy governors, said on Monday that Threadneedle Street was “engaging” with the Treasury on the potential fiscal event. The plan, effectively a second budget in as many months, is expected to confirm deep cuts in public spending after a series of U-turns on Kwarteng’s unfunded tax cut promises.
Sunak had enjoyed popularity in opinion polls during his time as chancellor on the Covid pandemic, when he approved billions of pounds in spending to help businesses and workers during the health emergency.
However, that began to wane as it initially declined to provide cost-of-living support earlier this year. He also warned that tough tax and spending decisions were needed before losing to Truss in the Tory leadership race over the summer.
Philip Shaw, an economist at Investec, said: “Trying to win back voters when the economy is facing a different set of headwinds and taxes are going up is a completely different matter.”