Britain’s ruling Conservatives have had an unusual moment of sanity. In choosing former Chancellor of the Exchequer Rishi Sunak to replace Liz Truss as its new leader, the United Kingdom has swapped a prime minister with zero credibility for one to whom financial markets appear generally well disposed. It only gets the battered country out of its immediate crisis, though.
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. But investors are more bothered about his acquaintance with basic economic principles. After all, during the last Tory leadership campaign a mere two months ago, Sunak presciently predicted Truss’s unfunded tax cuts in the teeth of high inflation would panic markets. Having risen from 3.5% to 4.5% after her September “mini-budget”, UK 10-year government bond yields had fallen to 4% by last Friday after market turmoil.
Sunak’s credibility has a tangible value. With Truss, Britain would have had to lop 72 billion pounds off spending or raise the same amount in taxes to get debt falling as a proportion of GDP by 2027, according to government forecastsby the Sunday Times. About 30 billion pounds of her 45 billion pounds of unfunded tax cuts have been already reversed, leaving a narrower 40 billion pound hole.