The 42-year-old former hedge fund boss was asked to form a
government by King Charles, and will seek to bring an end to the infighting and
feuding at Westminster that has horrified investors and alarmed international
allies.
Sunak, one of the richest men in parliament, will have to
find deep spending cuts to plug an estimated 40 billion pound ($45 billion)
hole in the public finances due to an economic slowdown, higher borrowing costs
and a six-month program of support for people's energy bills.
With his party's popularity in freefall, Sunak will also
face growing calls for an election if he moves too far from the policy
manifesto that elected the Conservative Party in 2019, when then leader Boris
Johnson pledged to invest heavily in the country.
Economists and investors have said Sunak's appointment will
calm markets, but they warn that he has few easy options when millions are
battling a cost of living crunch.
"With a recession in 2023 now increasingly likely, and
the next general election in only two years' time, Rishi Sunak can expect a
challenging premiership," Eiko Sievert at the Scope ratings agency told
Reuters.
Sunak has warned his colleagues they face an
"existential crisis" if they do not help to steer the country through
the surging inflation and record energy bills that are forcing many households
and businesses to cut back spending.
"We now need stability and unity, and I will make it my
utmost priority to bring our party and our country together," he said as
he was elected by his lawmakers on Monday.
Sunak, Britain's youngest prime minister for more than 200
years and its first leader of colour, replaced Liz Truss who resigned after 44
days following a "mini budget" that sparked turmoil in financial
markets.
With debt interest costs rising and the outlook for the
economy deteriorating, he will now need to review all spending, including on
politically sensitive areas such as health, education, defence, welfare and
pensions.
Reflecting the near constant state of turmoil in British
politics this year, politicians, journalists and photographers once again
crammed into Downing Street on Tuesday to hear a departing speech from Truss.
Speaking seven weeks to the day after she arrived as prime
minister, Truss did not apologize for her short tenure and said she knew
Britain was set for brighter days.
During her time in office the pound hit a record low against
the dollar, borrowing costs and mortgage rates surged, and the Bank of England
was forced to intervene to protect pension funds from collapsing.
Sunak will now start forming his cabinet, with some
Conservative lawmakers hoping he will include politicians from all wings of the
party.
He is expected to retain Jeremy Hunt as finance minister
after the former foreign and health secretary helped calm volatile bond markets
by ripping up most of Truss's economic program.
Investors will also want to know if Sunak still plans to
publish a new budget alongside borrowing and growth forecasts on October 31,
2022 which would help inform the Bank of England's interest rate decision on
November 03, 2022.
Sunak, a Goldman Sachs analyst who only entered parliament
in 2015, must unite his party, aware that voters are increasingly angry over
the antics at Westminster as the economy heads for recession.
He was blamed by many in the party when he quit as finance
minister in the summer, triggering a wider rebellion that brought down Johnson.
While many expressed relief that the party settled on a new
leader quickly, a sense of distrust remains among some while others questioned
whether struggling families would relate, or ever vote, for a multimillionaire.
"I think this decision sinks us as a party for the next
election," one Conservative lawmaker told Reuters on condition of
anonymity.
Historian and political biographer Anthony Seldon told
Reuters that Sunak would also be constrained by the mistakes of his
predecessor.
"There is no leeway on him being anything other than
extraordinarily conservative and cautious," he said.
Many politicians and officials abroad, having watched as a
country once seen as a pillar of economic and political stability descended
into brutal infighting, welcomed Sunak's appointment.
Sunak becomes Britain's first prime minister of Indian
origin.
