British pound on watch as Truss likely to be named new prime minister


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British Foreign Secretary Liz Truss is expected to be named leader of the governing Conservative Party on Monday, which would make her the next U.K. prime minister after the scandal-plagued resignation of Boris Johnson. Truss would edge out Rishi Sunak, who raised taxes after the pandemic and was seen as an instrumental force in bringing down Johnson’s government by resigning as Chancellor of the Exchequer back in July. Any prime minister will have to contend with a serious cost of living crisis and skyrocketing inflation that’s running at a 40-year high of over 10%.

Platform: Truss has previously pledged to set “a clear direction of travel” for monetary policy, as well as a review of the Bank of England’s mandate that lead to greater oversight by members of parliament. She also wants to reverse corporate tax increases, and help low-income households and small businesses deal with spiraling energy costs. While she has declined to give details of those measures, she has promised to act quickly, coming up with a plan to tackle rising energy bills and securing future supplies within a week. Energy crisis in the U.K. as regulator hikes bill price caps by 80%

The stance has prompted investors to worry about more government debt at a time when borrowing costs are surging. Weakness in the pound has also been compounded and just hit the lowest level versus the U.S. dollar since 1985. Uncertainty over economic policies and the ability to control inflation, as well as a pledge to review the remit of the BoE and relentless rally in the greenback have all been factors in the descent of sterling, and some think the pound could even fall to parity with the dollar in 2023.

Worst-case scenario: “The economic challenges facing the U.K. economy are probably of a magnitude as great as anything we’ve seen in living memory,” said Mark Dowding, chief investment officer of BlueBay Asset Management. “There’s a really bleak path in which you end up with the U.K. almost needing to go back to the IMF for a bailout as a quasi-emerging market crisis.”



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