New prime minister Rishi Sunak facing multiple crises from day one

UPDATED 24 October: Rishi Sunak has won the Conservative leadership contest by being the last horse in the race, after building a strong majority of MPs ready to vote for his installation in Downing St. Given the fiscal challenges he is facing, it will likely be a wholly different approach to governing compared to his time as chancellor, which was marked by ballooning public spending in response to the pandemic. This was marked by crucial support for workers and employers, although there were policies like 'Eat out to help out' which cost billions and likely added to the number of deaths from Covid-19.

Sunak, 42, lost the summer leadership election to Liz Truss, first winning the parliamentary party vote but losing when the decision was put to Conservative Party members. They did not get a say this time as he was the only candidate after Monday's 2pm submission deadline, in which candidates had to have the support of 100 fellow MPs. 

In a statement over the weekend, he said the current challenges faced by the UK were "even greater" than the pandemic but with "phenomenal" opportunities available at the same time. He said he would govern with "integrity, professionalism and accountability". Jeremy Hunt will reportedly remain as chancellor, while other Cabinet appointments will be announced this week. 

Sterling remained flat on confirmation Sunak had won the contest, at around $1.13, although he had been the heavy favourite since the resignation of Truss last week. 

20 October: Almost a month after sending the pound tumbling and putting the gilt market into disarray with plans for massive tax cuts, prime minister Liz Truss has resigned. She will become the shortest-serving prime minister in the country's history, and quit after continuing to push through policies that went against the Tory manifesto from the last election. She said her grand plans as outlined in her leadership bid were not possible and therefore she had to resign. 

The pound rose against the US dollar by 0.5 per cent after the news broke that Truss would make a statement outside 10 Downing St, while gilt yields fell. 

See also: Truss resigns - market reaction. 

The question now is who comes next - though a week-long campaign means answers will arrive soon enough. Jeremy Hunt has come in as chancellor and cut back most of the "mini" Budget tax cuts, but will not be standing as leader. Rishi Sunak won the parliamentary leadership vote in the summer but is unpopular with the broader party membership. His standing may well have been improved by recent events, however.

Paul Dales at Capital Economics said market sentiment was one of simple relief that Truss was on the way out. "The resignation of Truss is a step that needed to happen for the UK government to move further along the path towards restoring credibility in the eyes of the financial markets," he said. 

Confederation of British Industry director general Tony Danker said the next occupant of Number 10 would have to "deliver a credible fiscal plan for the medium term as soon as possible". He said business, markets, global investors and everyday people had lost confidence in Britain because the drama of the past few weeks. 

"The next prime minister will need to act to restore confidence from day one," he added. 

Investment bank Liberum said Sunak would be the market's choice. 

"[He] is a known quantity who has managed the country's finances well during the Covid-19 pandemic," said analyst Joachim Klement. 

The 31 October fiscal statement is likely to still take place as a £40bn fiscal hole, as Dales describes it, still remains - in the context of the government's plans to have debt to GDP falling ove the medium term.

"The new prime minister and their chancellor have a big task to navigate the economy through the cost of living crisis, cost of borrowing crisis and the cost of credibility crisis," Dales concluded.