The Truss factor: Economy the biggest challenge for UK's new PM

Gargantuan challenges await her after the prolonged policy paralysis of the Boris Johnson era

Former foreign minister Mary Elizabeth Truss, better known as Liz, takes charge as the fourth prime minister since the Brexit vote in 2016 and the third woman to hold that office after handily beating former chancellor of the exchequer Rishi Sunak by a 20,927 vote margin. Though her victory was a foregone conclusion within the mostly white and ageing members of the Conservative Party, she is yet to test her popularity in the national hustings of the multicultural nation she heads. Each of her post-Brexit predecessors, Theresa May and Boris Johnson, held snap elections after they entered No. 10 Downing Street. It is unclear if

Ms Truss will follow that pattern, given the UK electorate’s deep poll fatigue and the gargantuan challenges that await her after the prolonged policy paralysis of the Boris Johnson era.

Chief among them is fixing the economy and the cost of living crisis that has precipitated strikes among healthcare, rail and university workers for higher pay. Restarting negotiations on the Brexit deal also hangs in the balance. The UK is suffering the highest inflation rate among G-10 economies and the outlook for economic growth is the poorest. These factors have driven down the pound sharply, pressures that could exacerbate if energy costs, which the Russia-Ukraine crisis has worsened, rise further as they are expected to do with the onset of winter. The result has been a high current account deficit that stood at 8.3 per cent of gross domestic product in the first quarter and could rise to 10 per cent, bringing, according to one analysis, the UK close to an emerging market-style balance of payments crisis.

Without a stable economy and trade, the UK is unlikely to attract enough foreign capital to fund its external deficit, but it is hard to see how Ms Truss’ Thatcherite policy pronouncements to date will alter the picture significantly. In her campaign, she pledged to slash taxes, a move that would disproportionately benefit the nation’s highest income earners, and freeze energy bills, which could cost the exchequer £100 billion. She has ignored advice from critics that such untargeted spending could worsen the macroeconomic condition. The stalled Brexit talks under her watch as foreign minister and tensions over the UK’s moves to alter the Northern Ireland trade protocol without consultation with the EU are unlikely to remove investor uncertainty either. Sorting this out is critical since the EU is the UK’s largest partner and trade between the two has fallen steeply since Brexit. Meaningful free trade deals with other major countries, including with the US, its second largest trading partner, are yet to fructify to make good this fall.

With serial crises at home, it is unclear whether Ms Truss will have the mental bandwidth to fulfil her promise as international trade minister to conclude a trade deal with India “by Diwali,” describing strategic and economic ties with New Delhi as a “sweet spot in global trade dynamics”. Last year, she had signed off on the India-UK Enhanced Trade Partnership, which started the latest negotiations. She has indicated, too, that she is likely to ease the visa regime for Indian professionals, earlier a major sticking point. But the reality of the challenges before her may delay these well-intentioned moves.