Rishi Sunak warns over 'profound economic challenge' as he prepares to become prime minister

Ms Mordaunt, the leader of the House of Commons, withdrew from the contest moments before the results of the ballot of Tory MPs was announced by chairman of the backbench 1922 Committee, Graham Brady.

In a statement after pulling out of the contest, Ms Mordaunt insisted that “Rishi has my full support”.

She added: “I am proud of the campaign we ran and grateful to all those, across all sides of our party, who gave me their backing.

“We all owe it to the country, to each other and to Rishi to unite and work together for the good of the nation. There is much work to be done.”

But Mr Sunak issued a stark warning that “there is no doubt we face a profound economic challenge”.

In a short and nervous speech to the public from Conservative party headquarters yesterday, Mr Sunak added: “We now need stability and unity and I will make it my upmost priority to bring our party and our country together because that is the only way we will overcome the challenges we face and build a better more prosperous future for our children and our grandchildren.

“I pledge that I will serve you with integrity and humility and I will work day in day out to deliver for the British people.”

Mr Sunak told Conservative MPs behind closed doors in the House of Commons they face an “existential moment”.

He reportedly told Tory MPs they must “unite or die”, as they focus on delivering on the public’s priorities during a cost-of-living crisis.

But Mr Sunak faces a host of immediate crises he will be expected to resolve following the chaotic 44-day premiership of Liz Truss.

The cost-of-living crisis, a key theme during the initial Conservative leadership campaign over the summer, is likely to become front and centre of any attempt by Mr Sunak to reclaim his party’s standing in the polls with the public.

During the leadership contest, the PM in waiting positioned himself as the candidate prepared to tell hard truths about the state of public finances rather than the “comforting fairy tales” of Ms Truss.

Mr Sunak argued that her unfunded tax cuts at a time of spiralling inflation were dangerous, predicting they would lead to surging mortgage rates.

He was proven right after Ms Truss’s disastrous mini-budget triggered turbulence in the financial markets, sending the pound tumbling and forcing the Bank of England’s intervention.

The energy support package put in place by Ms Truss will calm some nerves until April, but one of a flurry of U-turns on her disastrous mini-budget means universal support will not be offered in the next financial year.

That will be a key decision for Mr Sunak, as will whether he opts to keep Jeremy Hunt as Chancellor to offer some stability.

One of the biggest task facing Mr Sunak will be reassuring the financial markets, after sterling and the price of government bonds saw wild fluctuations during the short-lived Truss administration and the mini-budget fiasco.

Ms Truss had gambled everything on boosting economic growth, but instead her successor will inherit a country heading for a potentially prolonged recession.

The new prime minister will point to his time as chancellor, but as Labour have already highlighted, the economy did not grow under his leadership, albeit with the backdrop of the pandemic.

Mr Sunak’s economic strategy he proposed during the leadership contest has largely been rendered out-of-date by the turmoil caused by Ms Truss’s administration.

He had pledged to cut the basic rate of income tax from 20 per cent to 16% within seven years – while Mr Sunak also proposed that VAT on energy bills would be scrapped.

But he crucially warned that tax cuts would need to be put on hold until soaring levels of inflation are brought back under control.

Frustratingly, during the second leadership contest, Mr Sunak has failed to answer a single question or give any further detail of his economic vision and strategy for countering the financial strain left by his predecessor.

The key budget announcement next Monday will be Mr Sunak's opportunity to tell the public and the financial markets how he intends to tackle the economic strain.

SNP Westminster leader Ian Blackford has warned over the importance of tackling the cost-of-living crisis while calling for a snap general election.

He said: "The decisions that are made in the weeks and months ahead will be hugely significant and will impact the economy, public services and household budgets for years to come.

"Voters must get a say on what course they want to take – instead of having damaging decisions imposed against our will."

Brexit will also be a key challenge for Mr Sunak, more than six years after the UK voted to leave the EU.

Pushing ahead with the Northern Ireland Protocol Bill, allowing the UK Government to override elements of the UK-EU deal is likely to provoke a fierce parliamentary battle in the Lords – Tory grandee Lord Heseltine warned it would be “massacred” – as well as cause outrage in Brussels.

There is also the prospect of fresh elections in Northern Ireland if the DUP maintains its opposition to joining a powersharing executive at Stormont by Friday.

The DUP is refusing to nominate ministers to form a new executive until the Westminster Government takes decisive action on the protocol.

If the Stormont institutions are not restored by Friday, Northern Ireland Secretary Chris Heaton-Harris has pledged that he will call fresh Assembly elections.

In his message to the new prime minister, DUP leader Sir Jeffrey Donaldson said: “There may be a focus on the unity of the Conservative Party, but the unity of our United Kingdom must be protected.

“The protocol is incompatible with the restoration of devolved government in Northern Ireland.

“If the prime minister wants to see a fully functioning Stormont, then he must deal with it once and for all.

“Delivering that solution would be a very powerful signal that he is focused on building a better future for everyone.”

Nicola Sturgeon's bid for Scottish independence largely hangs on the determination of the UK Supreme Court as to whether Holyrood can legislate to hold its own poll on separation.

Mr Sunak has been adamant that a second referendum should not take place, insisting that "I just don’t think that anybody thinks that now or any time in the near future is remotely the time to focus on this".

Ms Sturgeon yesterday stressed that "it's not for Rishi Sunak to decide whether Scotland becomes independent or not".

Immigration will be another key policy area where Mr Sunak will be judged.

The number of people risking the dangerous crossing of the English Channel has already hit more than 38,000, around 10,000 more than in the entirety of 2021.

But as well as coping with the small boats issue, Mr Sunak will also have to deal with industry demands for more migrant workers to be given visas to come to the UK, with labour shortages one of the main concerns voiced by employers across a range of sectors.

The dispute within government over migration contributed to the exit of Suella Braverman as home secretary, one of the factors which ended Ms Truss's leadership.