Here are challenges that await UK's next PM Rishi Sunak as he prepares to assume power

Former Treasury chief Rishi Sunak is set to become UK's prime minister at a crucial time of economic and political turbulence. He won the Tory race as his political adversaries withdrew from the contest, and his victory marked a historic moment as he is the first person of colour, of South Asian Indian descent, and the youngest premier to take over the reins in more than 200 years. All eyes are on Sunak, as he is set to assume office as the third prime minister, and among the many challenges that he inherits is an economy sliding toward recession and the roiling financial markets. Sunak had warned his predecessor Liz Truss against the disastrous tax cuts that have soared interest rates and stacked up UK's public borrowing. Here's the economic challenges Sunak inherits as he enters 10 Downing Street.

Restoring financial credibility

Rishi Sunak has inherited the tattered economy, and his immediate job would be to restore the financial credibility to fix the repercussions of the outgoing leader Liz Truss's fiscal policy of unfunded tax cuts that strained the bond market and forced the Bank of England to intervene. "We have to be honest, borrowing your way out of inflation isn't a plan, it's a fairy tale," Sunak had told Truss during the last Tory leadership bid that he had lost. He had warned that Truss's idea of scrapping the payroll taxes would undermine the business investment and add to the woes of the faltering economy. Now, Sunak as the prime minister will oversee tax hikes, and spending cuts. 

Energy Price Guarantee 

Energy Price Guarantee involves the energy price cap and is a subsidy scheme or backstop protection provided by the UK government to Britons who defaulted on their supplier's basic energy tariff. The energy Price Guarantee was introduced on 1 October, 2022 to help homes and businesses cope with high gas and electricity bills. The scheme reduces the unit cost of electricity and gas so that a household with typical energy use will only pay, on an average, £2,500 a year on their energy bill, for 6 months. While during the tenure of Liz Truss the scheme was supposed to last for 2 years, her new Chancellor Jeremy Hunt announced that it would be valid only till April. With the looming inflation, the energy bill for a typical British household that sums up to now £2,500 could hike to £4,000. And that is what Rishi Sunak, the new premier, will have to decide whether he can continue to keep the scheme running with a borrowing gap of £30-40bn.

Stabilizing financial markets 

All eyes are on Rishi Sunak to stabilize the financial markets as he sets down to mend the UK economy. While Sunak has a massive task of projecting stability, as he was elected, the markets sent government borrowing costs lower and it is expected that there may be more favourable mortgage rates. Bank of England is also expected to raise interest rates by a smaller amount to calm the financial market chaos. Sunak on Monday pledged that it was his “utmost priority to bring our party and our country together” in the face of a “profound economic challenge.”

UK households, and the rising cost of living

Truss' tax-cutting boosterism led to the soaring cost of living across the UK, with an estimated 93% of adults in Great Britain reporting an increase in their cost of living in August-September 2022, according to the Office for National Statistics. Data suggests that in the face of inflation, low-income households largely spend a huge proportion of their average income on energy and food bills. As the economy has deteriorated sharply, Sunak not only has inflation to tame but lower the cost of living that is calculated as increasing at its fastest rate in 40 years. 

War in Ukraine, and gov't aid 

During his Spring Statement at Commons from the dispatch box, Rishi Sunak clarified in a speech that the UK policy towards Ukraine will not change. He also reaffirmed Britain's backing to Ukraine during his previous Tory race bid saying, "If I become prime minister, I will redouble our efforts and reinforce our policy of total support for Ukraine that Boris has so ably led." While on occasions, Sunak had admitted that the war in Ukraine does not come "free of cost" and that Ukraine's military support in the long term means spending more pounds, Sunak will have to ponder on the defence spending which Liz Truss promised to boost from 2% to 3% from the national wealth. Sunak had called that plan "arbitrary."