Truss to be Britain's new prime minister

·7-min read

LONDON (Reuters) - Liz Truss will become Britain's new prime minister after members of the ruling Conservative Party elected her as their new leader.

Following a nearly two-months long contest that was triggered by Boris Johnson's resignation, Truss was announced the winner on Monday and will this week form her government.

She will take the reins at a time of huge economic uncertainty, with Britain confronting a cost of living crisis driven by soaring energy bills, industrial unrest, a looming recession and war in Ukraine.

MARKET REACTION:

Financial market reaction was muted. Truss had led in polls throughout the summer and investors are now waiting for more substantive policy announcements in the days ahead.

Sterling remained weaker at just below $1.15, not far from a 2-1/2 year low of $1.1444 hit earlier on Monday. The pound has been hit hard recently with traders dumping British government bonds in expectation the Bank of England will hike interest rates faster under a Truss government.

The FTSE 100 also remained slightly weaker while the domestically focused FTSE 250 shed 1.3%.

POLITICAL REACTION:

KEIR STARMER, LEADER OF THE OPPOSITION LABOUR PARTY, SPEAKING TO REPORTERS:

"We've heard far more from the latest prime minister about cuts to corporation taxes over the summer, than we have about the cost-of-living crisis, the single most important thing that's bearing down on so many millions of households.

"That shows not only that she's out of touch but that she's not on the side of working people. So she needs to deal with the cost-of-living crisis, she needs to deal with the fact the NHS is on its knees, and she needs to deal with the collapse of law and order.

"There can be no justification for not freezing energy prices. There's a political consensus that that needs to happen. She needs to answer the question how she's going to pay for that. Labour have been clear there needs to be a windfall tax on oil and gas companies.

"So she needs to show that she actually understands, and can meet the challenges that are there after 12 years of failure of this Tory government."

RISHI SUNAK, EX-FINANCE MINISTER AND RUNNER-UP TO TRUSS, ON TWITTER:

"It's right we now unite behind the new PM, Liz Truss, as she steers the country through difficult times."

BORIS JOHNSON, OUTGOING BRITISH PRIME MINISTER, ON TWITTER:

"Congratulations to @trussliz on her decisive win.

"I know she has the right plan to tackle the cost of living crisis, unite our party and continue the great work of uniting and levelling up our country. Now is the time for all Conservatives to get behind her 100 per cent."

THERESA MAY, FORMER BRITISH PRIME MINISTER, ON TWITTER:

"Congratulations @TrussLiz. We @Conservatives must now work together to address the challenges facing our country. Tackling the cost of living, delivering for those in need & managing the public finances responsibly. I look forward to supporting the government in that task."

NICOLA STURGEON, SCOTTISH FIRST MINISTER, ON TWITTER:

"Congratulations to Liz Truss. Our political differences are deep, but I will seek to build a good working relationship with her as I did with last 3 PMs.

"She must now freeze energy bills for people & businesses, deliver more cash support, and increase funding for public services."

DAVID CAMERON, FORMER BRITISH PRIME MINISTER, ON TWITTER:

"Many congratulations to new PM @trussliz. At this time of challenge & global uncertainty, I wish the new government well. I never forget the support I had from all former Conservative leaders when I won the ballot in 2005 & I hope all Conservatives will unite behind the new PM."

MICHEAL MARTIN, IRISH PRIME MINISTER, ON TWITTER:

"Congratulations Liz Truss on your election as Conservative party leader. I look forward to working with you, as PM of our nearest neighbour, on important issues we face together, both bilaterally and globally.”

JEFFREY DONALDSON, LEADER OF THE DEMOCRATIC UNIONIST PARTY, BELFAST:

"We have already requested an early meeting with the new Prime Minister to address the challenges in Northern Ireland both with the Protocol and our approach to energy and food security.

"To address the cost-of-living crisis in Northern Ireland, the Government must replace the Northern Ireland Protocol with arrangements which restore our place in the United Kingdom.

"The energy and food security of the United Kingdom will require an immediate and robust response from the new Prime Minister. Yet both areas are heavily restricted under the Protocol."

BUSINESS COMMUNITY REACTION:

TONY DANKER, DIRECTOR-GENERAL, CONFEDERATION OF BRITISH INDUSTRY:

"Congratulations to the new Prime Minister. This is an extraordinarily difficult time to be leading the country, and she has businesses’ full support in meeting shared challenges together, head on.

"Most immediately, support for struggling households and firms in jeopardy is top of the in-tray. This may not be the pandemic, but the exceptional circumstances we now face mean government must play a central role in supporting our economy."

SARAH HOWARD, CHAIR, BRITISH CHAMBER OF COMMERCE:

"She (Truss) must now take immediate steps to support the economy...We believe the country has already entered a recession and that inflation will hit at least 14% in the months ahead.

"Like households, firms have been telling us of unsustainable rises in their energy bills and how difficult it is to find new fixed term contracts to buffer against further price hikes.

"Unless the new Prime Minister addresses these problems head-on then the economy will drift further into dangerous waters and the outlook for both businesses and consumers will be bleak indeed."

FINANCIAL COMMUNITY REACTION:

PAUL DALES, CHIEF UK ECONOMIST, CAPITAL ECONOMICS:

"The news that Liz Truss will become the new Prime Minister tomorrow suggests that a big loosening in fiscal policy will limit the depth of the recession, but that underlying inflation pressures may be stronger as a result. That increases the upside risks to our forecast that interest rates will rise from 1.75% now to a peak of 3.00%."

"We doubt Truss will be able to prevent a recession. But her policies could limit its depth and length. Our current forecasts envisage real GDP fall by around 1% from its peak to its trough over a the course of a year."

ELETTRA ARDISSINO, RESEARCH ANALYST, GREENMANTLE, LONDON:

"Markets will now be looking to see how she is going to square additional fiscal help to households with the tax cuts she gas promised.

"If she delivers the full extent of tax cuts and offers more household support that will likely mean more borrowing and would be bearish for sterling.

"She is likely to remain confrontational with the EU, at least in her rhetoric."

SALOMON FIEDLER, ECONOMIST, BERENBERG:

"We expect Liz Truss to be less erratic than her predecessor Boris Johnson was. That should be a significant positive for the UK economy. But whether her fiscal plans add up remains an open question, to put it mildly.

"Also, she seems inclined to continue the dispute with the EU, threatening to unilaterally renege on some of the politically-sensitive provisions of the Brexit deal about Northern Ireland. If so, the risk of trade tensions with the UK’s major market, the EU, could remain a drag on business investment in the UK."

ADRIANA ALVARADO, SENIOR VICE PRESIDENT, GLOBAL SOVEREIGN RATINGS, DBRS MORNINGSTAR:

"To assess the impact of potential spending increases, we would look at the long-term fiscal impact as well as the economic impact.

"We know that the UK had some fiscal headroom. This situation of extra spending is not unique to the UK. Many countries are having to take fiscal measures to deal with the cost-of-living crisis."

EUAN RELLIE, MANAGING PARTNER OF INVESTMENT BANKING FIRM BDA PARTNERS, NEW YORK:

"As a financial markets person I would have much rather seen Rishi Sunak win. Truss says she wants to make the UK more lean and nimble, but it’s wishful thinking.

"Our clients now see the UK as un-investible for the short to medium term. It’s sad.

"We expect a brutal recession in the UK for the 4th quarter of this year. It will be ugly for UK corporates and private equity investors watching now anticipate asset prices will come down, sterling will fall and there will be some very good deals to be had."

(Reporting by UK Bureau and London Markets Team; Compiled by Tommy Reggiori Wilkes, editing by Ed Osmond)