Sunak’s ‘Dullness Dividend’ Might Not Last

(Bloomberg Opinion) -- Britain’s Conservative government has apparently paused its effort to destroy itself and wreck the UK economy in the bargain. The new prime minister, Rishi Sunak, is well-placed to undo at least some of the damage of recent weeks. Judging from the immediate rise in bond prices and value of sterling, investors greeted his appointment with relief. It might not last long.

Sunak, Britain’s third leader in seven weeks and first non-white prime minister, could hardly fail to be an improvement. Former prime minister Boris Johnson bungled and dissembled his way through a series of self-inflicted scandals, alienating most of the country and squandering a landslide parliamentary majority. Sacked by his party, he was briefly replaced in 10 Downing Street by Liz Truss. She instantly announced a reckless new tax-and-spending program that brought the financial system close to collapse.

Sunak is seen as pragmatic and competent — virtues lately all but absent from British politics. During the competition to replace Johnson, his criticisms of Truss were prescient. He said her plan to cut taxes and raise public spending before the Bank of England was on top of inflation would destabilize the country’s finances. He probably didn’t expect to be proved right so quickly. The challenge now will be to execute the approach he promised, with fiscal restraint for as long as needed.

The calamity of Truss’s brief tenure ought to help: It confronts the Tories with the prospect of being wiped out at the next election. Three years after Johnson secured an 80-seat majority in the House of Commons, opinion polls recently gave Labour a lead of 53% to 14% over the Conservatives. Such numbers make talk of an existential threat to the party no exaggeration. For the moment, this has convinced Tory MPs of the overriding need to unite — hence Johnson’s failure to build support for a second spell as prime minister and the haste of Sunak’s former opponents to support the new leader.

For his prize, Sunak inherits a party still deeply split — over the unfinished business of Brexit, especially, but also over immigration, taxes, funding for public services, regional inequality and other contentious matters. The UK has been especially hard hit by the soaring cost of gas, making its inflation among the highest in Europe. Labor unrest is mounting, as public-sector unions try to maintain their members’ real wages. Sunak’s pledge to restore fiscal and financial responsibility may calm markets, but standing by that commitment as the central bank raises interest rates to curb inflation makes a serious recession possible if not probable.

The prospect of persistent inflation alongside rising unemployment will also add force to the Labour Party’s charge that the Sunak government has no popular mandate. Plausibly enough, after weeks of sheer chaos, the opposition is again calling for an early election. If the Tories stay united, they won’t let that happen. Even so, the charge that Sunak’s government lacks legitimacy can only weaken the new prime minister as the economic stresses continue to mount.     

The City of London is calling this week’s softening of bond yields Sunak’s “dullness dividend.” After the past few weeks, a prolonged spell of boredom is just what the UK needs. Events are unlikely to oblige.

More From Bloomberg Opinion:

• Rishi Sunak Is a New and Old-Fashioned Tory: Adrian Wooldridge
• UK Tories Are Finally ‘Ready for Rishi.’ Is It Too Late?: Therese Raphael
• The Bank of England Is Central Banking’s Crash Test Dummy: Marcus Ashworth

The Editors are members of the Bloomberg Opinion editorial board.

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