Conservative party leadership elections: The battle to be the next PM
- Liz Truss remains solidly ahead of Rishi Sunak in the polls and we expect a Truss victory.
- The incoming Prime Minister however faces a myriad of challenges with the cost-of-living crisis top of the agenda. A more targeted response, which both candidates have yet to deliver, is required.
- Truss’s proposed tax cuts cost £40bn (1.7% of GDP) and are likely to require more public borrowing but public finances are set to remain constrained in the long term.
- We see GDP being boosted by 0.4% and Consumer Price Index inflation by 0.3 percentage points higher under Truss and expect the Bank of England to deliver 25-50 basis points of tightening than otherwise would be the case.