Liz Truss has resigned after the shortest, most chaotic tenure of any UK prime minister, forced out after her economic program shattered the country's reputation for financial stability and left many people poorer.
The Conservative Party, which holds a big majority in parliament and need not call a nationwide election for another two years, will now elect a new leader by 28 October - the UK's fifth prime minister in six years.
That contest is likely to pit ex-finance minister Rishi Sunak against Penny Mordaunt, but could also see the return of Boris Johnson, who was ousted as prime minister in July when his ministers resigned en masse to force him out of office.
The sight of yet another unpopular prime minister making a resignation speech in Downing Street - and the start of a new leadership race - underscores just how volatile British politics has become since the 2016 vote to leave the European Union.
Speaking outside the door of her Number 10 office, Ms Truss accepted she had lost the faith of her party and would step down next week. The pound rallied as she spoke.
"I have therefore spoken to His Majesty the King to notify him that I am resigning as leader of the Conservative Party," said Ms Truss, who was supported only by her husband with her aides and loyal ministers noticeably absent.
Ms Truss was elected in September to lead the Conservative Party by its members, not the broader electorate, and with support from only around a third of the party's politicians.
She had promised tax cuts funded by borrowing, deregulation and a sharp shift to the right on cultural and social issues.
But within weeks she was forced to sack her finance minister and closest political ally, Kwasi Kwarteng, and abandon almost all her economic program after their plans for vast unfunded tax cuts crashed the pound and sent British borrowing costs and mortgage rates soaring.
Approval ratings for her and the party collapsed.
On Wednesday she lost the second of the government's four most senior ministers, faced laughter as she tried to defend her record to parliament and saw her MPs openly quarrel over policy, deepening the sense of chaos at Westminster.
New finance minister Jeremy Hunt is now racing to find tens of billions of pounds of savings to try to reassure investors and rebuild Britain's fiscal reputation.
With the economy heading into recession and inflation running at a 40-year high, millions of Britons are struggling with a cost-of-living crisis.
Mr Hunt, who has ruled himself out of the leadership race, is due to deliver a new budget on 31 October that is likely to cut spending on public services that are already showing clear signs of strain.
One senior Conservative MP said Mr Sunak and Ms Mordaunt were willing to keep Mr Hunt as their finance minister.
Next race for Downing Street
One of the most contentious issues facing the Conservatives is how they elect a new leader after the party's 170,000 members chose Ms Truss over the wishes of its elected MPs at Westminster. Groups within the party have battled over the direction of the country since the Brexit vote.
In previous contests, the candidates were whittled down to two through a number of MPs votes over weeks, before the membership selected the winner. Many Conservative politicians say that cannot be allowed to happen again.
"Members can't have a say, we have to sort this out," one MP said. Asked if the party could rebuild its reputation from this point, he added: "Never in a million years."
Organisers said that any candidate would need the backing of 100 MPs, and that if only one candidate passes that threshold by Monday afternoon London time they will automatically become prime minister. If two candidates remain, party members will get an online vote.
Among those expected to run for the role are Mr Sunak, the former Goldman Sachs analyst who became finance minister just as the COVID-19 pandemic arrived in Europe.
While he has been proven right in his warnings that Ms Truss's fiscal plan threatened the economy, he remains deeply unpopular with some Conservatives after he helped to trigger the summer rebellion against Mr Johnson.
A bookmaker takes bets for the next British Prime Minister after Liz Truss resigned in London. Source: AAP / (AP Photo/David Cliff)
Mr Johnson, who still faces an investigation into whether he misled parliament after he and his staff held a string of parties during COVID-19 lockdowns, may also be a candidate.
The face of the 2016 Brexit campaign has loomed large over politics since he became London mayor in 2008. He led his party to an election victory in 2019 but was driven out of office in July by colleagues who were disgusted by his conduct.
"I hope you enjoyed your holiday boss. Time to come back," one Conservative politician, James Duddridge, said on Twitter, adding "#bringbackboris".
A poll of party members earlier this week showed most wanted Johnson to return, but betting odds put Mr Sunak as the favourite, ahead of Ms Mordaunt, defence minister Ben Wallace and Mr Johnson.
Ms Truss will enter the history books as the prime minister with the shortest tenure, replacing George Canning, who had held the role for 119 days when he died in 1827.
The main opposition Labour Party - and many voters - have called for a general election.
"She's not been voted in and certainly, the policy decisions she made, none of the British people asked for any of those," 50-year-old Kelly Rodgers told Reuters outside Downing Street. "So (it's) right and proper she should go."
"But equally, she's just symbolic of her party - it's absolute chaos."
