| For a limited time, enjoy 30% off an annual digital subscription. Your support protects our vital independence and keeps us free of a paywall. To say thank you, we'll unlock unlimited reading in our quality news app and ad-free reading on all your devices. | | | | |  Tackling the UK's energy crisis must be high on Liz Truss's list, and there are a flurry of reports that the next PM will take rapid steps to freeze bills.
This has lifted the pound back by almost a cent this morning, to $1.16, reversing Monday's selloff.
Truss is expected to unveil an emergency package to tackle the cost of living crisis, to include freezing energy bills for homes and businesses until January next year at least – and possibly until 2024, according to some reports.
Truss allies have been locked in talks with energy bosses, thrashing out details of the price freeze.
One option on the table is that energy suppliers will be able to take out government-backed loans to subsidise bills, with the cost then repaid over years to come.
Truss takes over a country on the brink of recession, with economists warning of the risk of a 70s- style sterling crisis if the UK loses the confidence of the international markets.
The UK's next prime minister faces one of the most challenging fiscal outlooks of any new prime minister in recent memory, once she's been appointed at Balmoral today.
One of her first tasks will be to announce a major support package for UK households to tackle the energy crisis.
But given her leanings towards tax cuts, Truss must tread carefully to avoid spooking the markets, risking a balance of payments crisis.
Deutsche Bank FX Strategist Shreyas Gopal has warned that the risks of a "sterling crisis" should not be underestimated, telling clients that: "The risk premium on UK gilts [government debt] is already rising, coincident with unusually large foreign outflows. If investor confidence erodes further, this dynamic could become a self-fulfilling balance of payments crisis whereby foreigners would refuse to fund the UK external deficit."
"A balance of payments funding crisis may sound extreme, but it is not unprecedented: a combination of aggressive fiscal spending, severe energy shock, and a slide in sterling ultimately resulted in the U.K. having recourse to an IMF loan in the mid-1970s."
Geoff Yu, FX and macro strategist at BNY Mellon, says there will be"devastating socio-economic consequences" if the government doesn't act to prevent energy bills rising from "barely 3% of median household disposable income to closer to 20%".
All European governments are expected to announce their own measures – and windfall taxes will need to be part of the solution, Yu says.
But as Truss has prioritising tax cuts to kickstart growth throughout her leadership campaign, it will be hard for her not to deliver revenue-based easing.
He writes: "This sets the UK up for some serious questions on fiscal credibility – it is already being tested in bond markets.
"We share concerns regarding the right balance of fiscal plans in the UK and expect some degree of fiscal risk premia to feature in the near term. However, we think fears of unfunded tax cuts and energy subsidies precipitating a fiscal collapse are not justified."
Yu adds that the markets are questioning Truss's argument that productivity improvements will pay for tax cuts – as she must face a general election in two years.
A closely-watched survey of UK purchasing managers yesterday showed that the UK private sector shrank in August, suggesting a rising recession risk.
The energy crisis is also forcing Britons to cut back on spending.
The British Retail Consortium has reported this morning that sales volumes tumbled last month, with retailers relying on price rises to lift their sales.
The agenda
• 7am BST: German factory orders for July
• 8.30am BST: Eurozone construction PMI report
• 9.30am BST: UK construction PMI report
• 10.30am BST: Business, Energy and Industrial Strategy (BEIS) committee hearing on the cost of living crisis
• 3pm BST: US ISM services PMI
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Liz Truss must try to calm markets' nerves with a clear stance on Bank independence 
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