Liz Truss has become the new prime minister today (5 September), replacing Boris Johnson.

She garnered 81,326 Conservative votes, while her opponent Rishi Sunak received 60,399.

This outcome is line with the forecasts. A YouGov poll from 19 August put Truss clearly ahead of Sunak.

Investors seemed, however, to have a slight preference for her opponent. A survey of 885 UK-based retail investors by HYCM found that 36% investors favoured Sunak, while 31% leant toward Truss and 33% had no preference.

In addition, Kwasi Kwarteng is expected to become the next chancellor of the exchequer.

Truss will move in 10 Downing Street amid a difficult macroeconomic climate and significant challenges ahead.

Royal London Asset Management head of multi asset Trevor Greetham says: “Boris Johnson once said it would be a great thing to have crack at being prime minster if the ball ever came loose from the back of the scrum. Now, in rugby terms, he looks to have executed what is known as a hospital pass.

“The new prime minister takes office with inflation running into double digits, strikes crippling essential services and energy shortages looming.”

A highlight of Truss’s campaign is her plan to cut taxes to turbocharge the economy.

Data from City Index suggests that markets are worried about her strategy, with the pound trading at its lowest level since March 2020.

“This could easily backfire and send inflation higher still,” City Index senior financial markets analyst Fiona Cincotta warns.

Hargreaves Lansdown senior investment and markets analyst Susannah Streeter also warned that ‘Trussenomics policies’ could create a ‘fresh tangle’ of problems for the UK economy.

She says: “Slashing income taxes, corporation taxes and direct taxes like VAT while also dangling the pledge for extra help for households facing punishing energy bills risks pushing the country much further into the red at a time when the country’s debt pile is already mounting fast.

“The thorn in her side is that around a quarter of government-issued debt is inflation linked, and with forecasts showing the headline rate could reach an eye watering 22%, the cost of servicing that borrowing is shooting up.

“There is considerable nervousness surrounding her strategies which has already been reflected in the reaction on financial markets to her impending arrival in Downing Street.

“The worry is that far from pulling the economy out of recession, the policies of Liz Truss risk a prolonged period of stagflation.”

During the campaign, media reported that Truss had plans to merge the Financial Conduct Authority, the Prudential Regulation Authority and the Payment Systems Regulator into one ‘super regulator‘.

The industry and MPs have received this idea with scepticism.

Truss is starting her term just after Russia halted gas flows along Nord Stream 1, sending UK gas prices 25% higher in early trading today.

“Higher gas prices and lower supply raise the prospect of rationing and blackouts and lift inflation higher,” Cincotta adds.

With skyrocketing energy bills and the prospect of rationing and blackouts, an important question is what support will be offered to households and businesses.

On the housing side, Twenty7Tec chief executive James Tucker says: “One thing that I hope that our new PM gets right is the stop treating the housing and mortgage sectors as unrelated industries. The ministry of housing, communities and local government and the treasury need more joined-up thinking on how they work together.

“There’s a lot of rhetoric about housebuilding, yet even the recent report by the Land Registry into house buying barely touches on the element that makes the market work: mortgages.

“In my view, the government needs a fully functioning mortgage market in order to continue to deliver a healthy and vibrant housing market which contributes to the nation’s greater wealth.

“We’d love to have clear commitments in relation to how to support first-time buyers (FTBs), for example. Without FTBs being able to access the market, then the rest of the chain is possibly overly reliant on buy-to-let landlords at the lower echelons.”