Worried business leaders are cautiously welcoming Rishi Sunak as prime minister after the confidence of company bosses plummeted during Liz Truss’ brief tenure as prime minister, amid signs the UK economy is heading for a recession.
Optimism among business leaders fell in October to the lowest level since April 2020, amid the Covid-19 pandemic, the latest economic snapshot showed. early stage.
Industry leaders say the new prime minister must take urgent steps to help repair damaged business confidence. The British government’s borrowing costs fell in global markets after news of Sunak’s election as Conservative leader, while sterling was little changed against the dollar.
Tony Danker, director-general of the CBI lobby group, said the former prime minister had a “good track record of seeing the economy in difficult times” during the Covid-19 pandemic. “[He] This is a time of uncertainty and difficult choices.
“The new prime minister can quickly mitigate the impact of market volatility on households and businesses and help restore fiscal credibility.”
In his brief victory speech, Sunak said he recognised the “deep economic challenges” facing Britain, adding: “We need stability and unity now.”
Sterling fell to an all-time low immediately after the small budget but recovered gradually as the government delayed its plans, trading 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%, back to levels close to where it was before Kwasi Kwarteng’s disastrous fiscal announcement a month ago.
Sunak will formally take over as prime minister after a meeting with the king at Buckingham Palace, likely on Tuesday, when Truss will be here for 50 days.
Shevaun Haviland, director general of the British Chambers of Commerce, said his appointment came after months of “extremely damaging” political and economic uncertainty. “We can no longer see any missteps in policy – UK businesses need a sustainable, long-term economic plan they can trust.”
Jurgen Meier, the former chief executive of Siemens UK, said he thought the former prime minister was the best person to “try to bring some much-needed calm”, but deep political risks remained.
“He needs to confront the right wing faction of the ERG in his party, who have done immeasurable economic damage. All prime ministers since Brexit have stumbled on this.”
The S&P Global/CIPS UK purchasing managers’ index fell to a 21-month low in October, new data showed on Monday, reflecting the heightened risk of a recession as households and businesses cut spending amid the highest inflation in 40 years. come bigger.
The monthly survey of company bosses was the third time in a row that the majority reported a contraction in activity. This includes delays in business investment decisions due to political uncertainty and concerns about higher borrowing costs due to the Bank of England rate hike.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “In addition to collapsing political stability, financial market stress and a slump in confidence, these higher borrowing costs will increase speculation of a severe UK recession. “
Meanwhile, Chancellor Jeremy Hunt is gearing up for the government to announce plans to cut debt on October 31. While some experts suggested the Conservative leadership race could be announced later, others said sticking to the agreed date would help prevent a sharp rise in interest rates when the Bank of England decides on borrowing costs at its next meeting on Nov. 3.
Dave Ramsden, one of the bank’s deputy governors, said on Monday that Threadneedle Street was “engaging” with the Treasury over a potential fiscal incident. The plan, effectively the second budget in as many months, is expected to confirm deep cuts to public spending following a series of U-turns on Kwarteng’s promise of unfunded tax cuts.
Sunak was popular in opinion polls during his tenure as prime minister amid the Covid-19 pandemic, when he approved billions of pounds in spending to help businesses and workers through the health emergency.
However, that started to wane as he initially declined to provide cost-of-living support earlier this year. He also warned of tough tax and spending choices before losing to Truss in the summer Conservative leadership race.
“It’s a whole other thing trying to win back voters when the economy is facing many different difficulties and taxes are going up,” said Investec economist Philip Shaw.