Liz Truss will be the United Kingdom’s next Prime Minister, following her victory over Rishi Sunak as part of her bid to take the reins of the governing Conservative Party. The race has officially been called after Ms Truss won 57.4% of votes from Conservatives, relative to 42.6% from Mr Sunak.
The race has been heavily watched and will have enormous short-term consequences for the UK, having been placed in a leadership vacuum with the outgoing former Prime Minister, Boris Johnson.
Ms Truss steps into the role during one of the UK’s most trying times in decades, facing an acute energy crisis that is in danger of leaving many in Britain unable to pay soaring utility costs.
What Happens Next?
Ms Truss will be flying to the Queen’s estate at Balmoral tomorrow to officially be sworn in as the UK’s next Prime Minister. Shortly thereafter she will then be choosing her new cabinet, which will be responsible for steering the UK forward and into this winter with inflation and energy costs running rampant.
Truss has been widely expected for some time to address the ongoing domestic energy crisis in the UK with a landmark bailout package. This is expected to take place in as little as a week as the situation continues to grow more dire and desperate for many in the UK, including the elderly.
Who Got a Say?
Conservatives were divided on several different issues surrounding above all the UK’s inflationary woes, taxes and energy concerns. Tory voters ultimately decided the fate, which took a turn towards Truss’ camp after her plan to cut taxes.
In particular, this included an effort to scuttle a previously planned hike in corporation taxes, while also reversing a rise in the national insurance personal tax. Perhaps most impactful was the teasing of Truss’ yet-to-be-released emergency budget, that is likely to resonate strongly with the Tory rank and file.
How Did the Leadership Vote Work?
Boris Johnson’s departure created a void in the UK’s leadership, leaving Liz Truss and Rishi Sunak to vie for supremacy in the Conservative party. This vote initially stemmed from Johnson’s resignation back in July, following a wave of scandals and party angst.
This in turn paved the way for a race between Truss and Sunak. Several early successes for Mr Sunak had evaporated recently, leading to a wave of support for Truss as a disruptor and agent of change for a country that sorely needs leadership in the face of a challenging upcoming winter.
Boris Johnson will officially remain Prime Minister until a formal transition of power on Tuesday.
How Does a Change in Leadership Affect the Markets?
The UK’s economic outlook looks increasingly concerning, regardless of who won the Conservative race. Faced with spiking energy prices and out-of-control inflation, the near-term outlook in the UK remains weak, with inflation unlikely to lower anytime soon. Furthermore, the Bank of England (BoE) is expected to maintain its tightening stance to control inflation, impacting the GBP.
Truss is expected to unveil her bold plan to address mounting energy costs this week, which could include a freeze of utility costs. It is uncertain how this would be paid for or achieved, though the priority will remain on addressing inflation with all options on the table.
Looking outside the UK, major markets are on holiday in the US, with the decision and subsequent fallout expected to be digested throughout the week. The bigger issue remains the fate of natural gas and energy into Europe after the indefinite shutdown of Nord Stream pipeline.
Do We Expect Changes in Regulation for the FCA?
There is not enough information at this time to determine if regulations under the UK’s Financial Conduct Authority could be affected. Previously, Truss had mused about merging UK regulators under one authority, which could obviously have sweeping consequences locally for markets, brokerages, and a wide range of financial service venues.
A previously proposed merger has at least in theory included the Payment Systems Regulator (PSR), which currently oversees the networks that facilitate money transfers, contactless payments and cash machines across the UK. The chatter over this bold plan has died down since mid-August, though will eventually need to be addressed after Truss’ cabinet and agenda takes shape.
