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LONDON (Reuters) - Liz Truss becomes Britain's new prime minister on Tuesday, facing inflation at 40-year highs, the biggest squeeze on household living standards in decades and a looming recession.
The newly elected Conservative Party leader has pledged to slash taxes to kick-start growth and is expected on Thursday to unveil her plan for the energy crisis. Further policy announcements are likely in the weeks ahead.
Here's a look at some of the assets that could emerge as winners and losers under a Truss premiership.
STERLING STUCK
Britain's battered pound may be the short-term winner but a longer-run loser.
The currency on Monday fell to its weakest since March 2020 at $1.1444, before rebounding to $1.16 on Tuesday.
Sterling could benefit from a plan to freeze energy bills after months of policy paralysis, and from a fiscally looser government - especially if the Bank of England (BoE) hikes interest rates faster to prevent further price pressures.
But the pound has failed to get much love from the ramp-up in BoE rate hike expectations and sterling's fortunes are tied to global sentiment, which doesn't favour the UK.
Some analysts see the pound next year testing its all-time low of around $1.05 hit in 1985.
Graphic: Issue of Truss- https://fingfx.thomsonreuters.com/gfx/mkt/akpezbqdjvr/Pasted%20image%201662374011830.png
GILTS UNNERVED
British government bonds, or gilts, are in the loser's camp.
August was the worst month for 10-year gilts since 1986, with yields surging 94 basis points.
Graphics: August was an awful month for UK gilts- tps://fingfx.thomsonreuters.com/gfx/mkt/movanejlnpa/gilts0502.png
That was partly due to another gas price surge, but also expectations that a Truss government will increase fiscal spending.
The average household energy bill is set to jump 80% to 3,549 pounds ($4,105) annually from October, with further rises on the way. Reports that Truss is considering freezing energy bills could ease inflation fears, but they also imply more government borrowing.
Citi expects fiscal support in the coming weeks to include an additional 40 billion pounds in net fiscal easing this year, and just shy of 70 billion next year.
NatWest Markets expects 10-year gilt yields to hit 3% from around 2.96% now.
STRUGGLING SHARES
British stock markets look unlikely to rebound, although they are at the mercy of global sentiment as much as Truss' policy plans.
Hargreaves Langdon analyst Susannah Streeter worries that slashing taxes and spending big will mean higher rates for longer - bad news for stocks.