Rishi Sunak Volunteers For Open Job Steering Titanic

Less than four months after resigning as chancellor and less than two months after losing the conservative leadership race to Liz Truss, Rishi Sunak will become UK prime minister.

To say Sunak “prevailed” wouldn’t be quite right. Penny Mordaunt withdrew from consideration Monday following Boris Johnson’s decision to drop out less than 24 hours earlier, meaning Sunak effectively became prime minister by default.

UK prime minister isn’t the most desirable job in the world currently, even if you do get a £115,000 per year lifetime allowance for giving it a shot. (Abject failure doesn’t disqualify you for the stipend, apparently.)

Sunak, who was running unopposed as of Monday, didn’t face a membership vote. He becomes the first prime minister of color, the first Hindu prime minister (on Diwali, no less), the youngest leader in centuries and the third prime minister in seven weeks.

To say Sunak’s job will be difficult would be a late candidate for understatement of the year. UK bonds rallied hard Monday on the assumption that Sunak at No. 10 will surely mean more responsible fiscal policy, but that depends on your definition of “responsible.” Jeremy Hunt (who was expected to stay on as chancellor) already had the UK on the road to something that looks a lot like austerity, and the corporate tax hike that Truss initially tried to cancel before a market revolt forced a reversal, was Sunak’s.

To be sure, not appeasing markets wasn’t an option. The rise in gilt yields itself threatened public finances, and nearly deep-sixed the country’s pension funds. That said, austerity into the teeth of a guaranteed recession could be especially painful, particularly considering the Bank of England is duty-bound to hike rates given onerous inflation realities. The only certainty is a prolonged bout with stagflation, which it now falls to Sunak to manage. (Be careful what you wish for, I guess.)

The rally at the UK front-end on Monday was pronounced — some 40bps. That’s a reflection of short unwinds, as the market aggressively prices out expectations for super-sized BoE rate hikes and, likely, a lower terminal rate. Again: The BoE does have to deliver additional large hikes, it’s just that between the certainty of recession and the reduced urgency of EM-sized moves to prevent a currency collapse and guard against the inflationary effects of an unfunded growth plan, the scope of those hikes will likely be somewhat smaller.

Sunak indicated that tax cuts will only be on the table when the time is right, and reportedly described “an existential threat.” Presumably he meant that in the context of his party, but it might also be applicable to the country as a whole.

Boris didn’t immediately offer a public congratulations, although it was surely coming. Truss, however, was gracious to her erstwhile rival. “Congratulations on being appointed as Leader of the Conservative Party and our next Prime Minister,” she told Sunak Monday. “You have my full support.”

As The Guardian noted, of the fortuitous timing, Diwali “celebrates new beginnings and the triumph of good over evil and light over darkness.”