Rishi Sunak can take cautious approach after disaster of Liz Truss | Larry Elliott

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Rishi Sunak is taking over as prime minister at a good time. That might sound a strange thing to say, given that the economy is already facing recession, inflation is at a 40-year high of 10.1%, the financial markets have just thrown the most enormous wobbly and the Conservative party’s poll ratings are at rock-bottom levels.

That, though, is the point. Things are so bad that for the incoming prime minister the only way is up, especially since Sunak can blame any tough decisions he needs to make on his two predecessors: Boris Johnson and Liz Truss.

Truss’s brief but disastrous premiership means Sunak can push ahead with the economic strategy he championed when Johnson was prime minister: a conventional, cautious form of Conservatism that puts the emphasis on stability and control of inflation rather than anything risky.

Unlike Truss, Sunak backed leave in the Brexit referendum of 2016 and remains convinced that Britain can seize the opportunities presented by life outside the EU. The new prime minister believes the key to faster growth is a mix of low inflation, deregulation and improvements to the supply side of the economy. There is no radical break with the past and there is really no such thing as Rishinomics.

On the other hand, Sunak can claim to be the real heir to Margaret Thatcher, because she also favoured a “tax cuts tomorrow but deficit reduction today” when she became prime minister in 1979. Whereas Truss was prepared to borrow for her package of tax cuts, Sunak will be prepared to wait and play it long.

It is a statement of the obvious that the new prime minister’s government is not going to want an immediate general election. All the recent signs suggest the economy contracted in the latest quarter and will go on shrinking through the winter, and perhaps beyond. Jeremy Hunt has said he has decisions to make as chancellor of “eye-watering” difficulty, which means big cuts in public spending intended to reduce the budget deficit.

A more orthodox approach has its risks. It is unusual for the Bank of England to be raising interest rates when the economy is shrinking, but interest rates will go up sharply next week. Hunt’s spending cuts and tax increases will be welcomed by the International Monetary Fund and the financial markets, but threaten to prolong and deepen the recession.

What’s more, Sunak can afford no policy mistakes, and his own record as chancellor was not entirely blemish free. Time is tight. The new prime minister’s best hope of avoiding a wipeout at the election is that by 2024 the economy will be recovering, inflation lower, and living standards rising. Then the pitch to the country will be: I took over after an economic Dunkirk. Like Churchill, I could initially offer you only blood, toil, sweat and tears. We are now through the worst and things are getting better. Let me finish the job.

There are problems with this plan. Sunak is relatively inexperienced and has yet to show he can emulate Churchill in 1940. Even if things go smoothly, there’s no guarantee the economic outlook will be greatly improved by 2024, and voters may be in no mood to reward the Conservative party even if it is.