Britain’s new Prime Minister, Liz Truss, is preparing to lead the nation as she faces a confluence of political and economic challenges.
Truss has planned to travel to New York to attend the UN General Assembly after national mourning over the death of Queen Elizabeth II ends on Monday.
The transition back to normal politics will be sudden and challenging for a Prime Minister who was in office for just two days before the Queen’s death.
On Saturday night, leading UK business groups put renewed pressure on ministers to get “absolute clarity” on what help the government would offer them with their energy bills, warning of dire consequences if they remained in limbo on the level of support would be left in the medium term.
Jacob Rees-Mogg, Truss’ new business secretary, will make an announcement on Wednesday on corporate support, which will be followed on Friday by a mini-budget from the new chancellor, Kwasi Kwarteng.
Kwarteng will reportedly announce £30bn in tax cuts to ease pressure from the cost-of-living crisis and boost economic growth.
UK Chambers of Commerce Director-General Shevaun Haviland said Truss’ earlier announcement that businesses would benefit from a six-month bill cap similar to that for consumers was very welcome.
“I’ve been told by several companies this is worse than Covid-19. Rising raw materials, rising costs including labor costs, inflation at 10% and now energy prices. They don’t know where to turn. In May, 23% of our companies said they would have to reduce production or stop trading.”
She said many businesses have skyrocketed their energy bills by 300% or more compared to last year, adding to a list of issues that have caused many to question their future.
Tory MPs are already concerned that Friday’s event, which is also expected to include the lifting of the cap on bankers’ bonuses, will offer an “open target for Labor” in the first few weeks of Truss’s tenure.
On the other hand, Labor leader Keir Stammer is determined to show the divide between what he sees as conservative tax cuts for the rich and their policy of ending the energy price cap for those in need with a tax on energy companies’ excess profits.
Economists believe a key challenge for Truss will be preventing international money markets from losing confidence as the struggling UK economy enters its worst period since the 1970s, when oil price shocks forced the Treasury into the arms of the International Monetary Fund .
The UK government’s borrowing costs have already risen sharply in recent weeks amid a broader sovereign debt sell-off. The yield on 10-year bonds is almost 3%, the highest since late 2013 and in August rose the most since 1986.
The pound fell to almost a 37-year low on Monday, as the closure of Russia’s Nord Stream 1 gas pipeline added pressure on the UK and European economies and fueled speculation that the UK economy is already in recession.
Sterling’s exchange rate fell to $1.14 against the US dollar, its lowest since March 2020. The currency also hit a 17-month low against the euro, with €1 worth £0.87.
Forecasts for the economy now show it will contract in the second half of this year and throughout next year, although the extent of the downturn is unclear after the government’s new £2,500 energy price cap injected £150bn into the economy .