In a recent development, Rishi Sunak, the former Chancellor, has secured the position of the UK’s next prime minister. Notably, this achievement marks the first time a leader of Indian heritage will hold this prestigious role. Sunak’s ascendancy occurred following the withdrawal of contenders Boris Johnson and Penny Mordaunt.
This transition has sparked curiosity regarding its potential impact on the UK economy. It is anticipated that international markets will regain confidence under Sunak’s leadership, particularly after the recent concerns stemming from his predecessor Liz Truss’s unfunded tax cuts. These concerns led to increased interest rates for both UK government borrowing and consumer financial products. In response to the news of Sunak’s victory, the pound’s value and British government bond prices experienced initial gains, although these fluctuations later stabilized.
While this leadership change might bring optimism to international markets, retailers could face disappointment. Sunak was in office when the VAT-free shopping privilege for tourists was significantly curtailed. Given that the current Chancellor, Jeremy Hunt, has reversed Liz Truss’s decision, Sunak is likely to align with this policy.
During his previous campaign for the Tory leadership, Sunak outlined his policy intentions, indicating that tax cuts would not be a priority until the economy exhibits greater stability.
Although this approach may limit consumer spending, there is hope that Sunak’s policies could have a positive impact on inflation. Nevertheless, it’s essential to recognize that several inflationary factors remain beyond the government’s direct control.