LONDON - Ms Liz Truss is set to become Britain's prime minister this week, with her plan to "turbo-charge" the economy by slashing taxes already worrying investors amid double-digit inflation.

The Foreign Secretary is the front runner to replace Prime Minister Boris Johnson, and Conservative Party members are expected to name her as their leader on Monday.

She will take office after declaring a willingness to run up the budget deficit just as the Bank of England (BOE) is raising interest rates and selling its own holdings of government bonds. She also has indicated she will review the central bank's mandate.

Markets have already signalled concern about a Truss premiership as bond traders fret that a flood of gilts may be too much to absorb, triggering higher debt-servicing costs.

Since July 7, when Mr Johnson decided to step aside, borrowing costs on 10-year government bonds have risen faster than those of any of the other 22 major bond markets. The pound has also trailed 132 of the world's 150 top currencies.

"We have a number of concerns about the dependence on the kindness of strangers to fund the UK when the public finances are likely to deteriorate materially," said Bank of America Corp strategist Mark Capleton.

Few leaders have taken charge of Britain with the economy in as dire a state. The most comparable moment is the early 1970s, when Labour's Harold Wilson entered Downing Street after an oil-shock and miner strike that left industry on a three-day week.

Should Ms Truss win, she will inherit inflation at 10.1 per cent and on track to breach 20 per cent for the first time since 1974, according to Goldman Sachs Group.

Investors are betting interest rates rise to 4.75 per cent by May, threatening misery for mortgage borrowers more familiar with rates below 1 per cent .

Energy costs are set to absorb as much as a 10th of household spending, pushing as many half of Britain's 28 million households into fuel poverty.

With the BOE expecting a recession by the end of the year, industry has also been told to prepare for orchestrated blackouts this winter. And labour groups are talking about the first nationwide strike since 1926.

Ms Truss' view is that cutting taxes and regulations will unleash the nation's productive potential and take advantage of the opportunities opened when Britain left the European Union.

Her plan is to make the public sector "more efficient" and bring the public finances under control by raising Britain's average growth rate to 2.5 per cent - a level not consistently achieved since before the 2008 financial crisis.

That will fix the public finances by bringing debt as a share of gross domestic product down in the longer term.

She has been deliberately vague about the details, but in broad terms it has three prongs: Tackle the immediate cost-of-living crisis with support for households and business; kick-start growth with £30 billion (S$48 billion) of personal and business tax cuts; lift the productive potential of the economy with supply side reforms.

The details, though, remain largely a mystery

"Staking out a libertarian position, Truss' plan to cut taxes will offer little support to those hardest hit by the deepening energy crisis, while creating additional long-term pressure on the public finances," said Bloomberg Economics analyst Ana Luis Andrade.

Economists, opposition politicians and even some in the ruling Conservative Party worry that her tax cuts will be inflationary and loosen fiscal restraints too much, turning the market downturn into a crisis.

She has pledged "no new taxes" to pay for the giveaways and says she does "not want to cut public spending" either.

Former BOE deputy governor Charlie Bean, who was also a member of the government's fiscal watchdog, the Office for Budget Responsibility, believes launching a policy experiment in the middle of a crisis is unwise.

"I could see investors starting to think the UK doesn't look such a good place to invest," Sir Bean told Bloomberg Television. "You'll see a risk premium reemerging on gilts, which is just starting to happen."

His fear that investors could lose faith in Britain is shared by Sir Nicholas Macpherson, the Treasury's former permanent secretary, who tweeted this week that "a rising cost of borrowing and a falling pound" is the Treasury's "worst nightmare".

Plans to review the BOE mandate are causing further unease. The Treasury handed the central bank authority over interest rates in 1997, but Ms Truss has suggested the government needs more directive powers. If she follows through, it could dent investor confidence in the institution.

Taken individually, none of Ms Truss' policy proposals are extraordinary. Her promise to reverse April's increase in national insurance and scrap next year's planned rise in corporation tax merely put tax policy back where it was at the start of 2020. Britain has reviewed the BOE mandate before, and Canada does it regularly.

But in the context of the current energy and inflation shock, and set against populist language about breaking from "economic orthodoxy", Ms Truss has people worried.

"UK government finances are a source of worry," said Pictet Wealth Management fixed income strategist Laureline Renaud-Chatelain. "The deficit is very likely to rise meaningfully going forward."

The Treasury is facing extreme strains. Support for households may top £50 billion, according to Deutsche Bank economist Sanjay Raja. Others suggest more than £100 billion will be needed to save businesses from bankruptcy and offset the rise in household bills.

As rates and inflation rise, the cost of servicing the national debt will jump to around £100 billion this year - twice the sum spent on transport.

Ms Truss' real test will come as investors respond to the new prime minister's first remarks in the next few days.

As Sir Bean, the former BOE economist put it: "Markets are the mechanism that punish bad policies." BLOOMBERG