Sunak Warns of Risk of Markets Losing Confidence in UK Economy

(Bloomberg) — Rishi Sunak, the underdog in the UK Conservative leadership race, has warned that the next prime minister faces the risk of markets losing confidence in Britain’s economy.

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Sunak’s opponent, Liz Truss, who is widely expected to win the race to No. 10 next Monday, has said she would swiftly implement a series of tax cuts, as well as some as yet undefined support for households, at an emergency fiscal event in mid-September.

But in an interview with the Financial Times published Tuesday night, Sunak said he “struggled to see” how Truss’s tax and spending commitments “add up,” warning it would be “complacent and irresponsible” for the next prime minister “not to be thinking about the risks to the public finances.”

Sunak, the former Chancellor of the Exchequer, told the paper he feared that unfunded spending commitments would lead to spiraling debt, rising inflation, interest rates and borrowing costs.

Urging Truss to stick to fiscal rules that would see debt falling as a share of GDP within three years, Sunak said: “Ultimately, you have to decide whether you think sustainable rate of borrowing are important or not. I think they are.”

He added: “We have more inflation-linked debt by a margin than any other G7 economy — basically more than double. Because of the structure of QE [quantitative easing], we’re also particularly much more sensitive to an upward rate cycle than we have been.”

Sunak also told the FT that the Bank of England did not need a new mandate, and defended his demand for “call in” powers for ministers over City regulators.

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