British Prime Minister David Cameron was holding his first Cabinet meeting yesterday, with rescuing the fragile economy the priority for the coalition government.
The center-right Conservatives and smaller centrist Liberal Democrats on Wednesday agreed on what critics call an unstable partnership of expedience after an inconclusive election.
Reducing Britain’s record budget deficit of more than 11 percent of national output will be the first test of the relationship.
Markets will be looking for signs that the Conservative-led coalition will quickly implement a plan to tackle the £163 billion (US$243 billion) deficit by cutting public spending, initially by £6 billion this financial year.
Economists quoted by British media said they also expected a rise in sales tax from 17.5 percent.
The government has promised an emergency budget within 50 days. Cameron said on Wednesday the government had the worst economic inheritance of modern times.
Other legislation expected on the agenda soon is a plan for a banking levy, a commission to investigate the possibility of separating retail and investment banking and plans to give the Bank of England more clout as a financial watchdog.
The atmospherics of the new partnership between Conservative leader Cameron and his new deputy, Liberal Democrat leader Nick Clegg, dominated British newspapers, with most focusing on their newfound friendship after weeks of sniping at each other on the campaign trail.
Commentators warned of trouble ahead given the two parties’ traditional ideological differences and Britain’s lack of experience with coalition rule. The new parliament includes a large number of new members with little Westminster experience.
However, markets have so far reacted positively to the commitment to make an early start on spending cuts. Turmoil in the eurozone has also given British assets greater appeal.
Legislation will be introduced to give parliaments five-year fixed terms, but parliament could still be dissolved if 55 percent or more of the House votes in favor.
The coalition government ends 13 years of Labour party rule under Tony Blair and then Gordon Brown.
Key figures in the new government include finance minister George Osborne, Vince Cable, the new business secretary, William Hague, in charge of foreign affairs, Liam Fox with the defense brief and Theresa May, the new home secretary.
Osborne, who turns 39 this month, has become the youngest finance minister in more than a century and some in the finance industry have expressed skepticism about his credentials.
ADDITIONAL REPORTING BY STAFF WRITER
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