The results may be declared today if Rishi Sunak emerges as the only candidate.
UK bonds soared after Boris Johnson pulled out of the race to become prime minister, leaving Rishi Sunak at the forefront, a candidate investors hope will restore credibility to economic policymaking and calm the country’s turbulent markets. will help.
Short-dated notes led the rally, reducing the yield on the two-year note by 36 basis points to 3.44%. Traders are also betting on the extent of interest rate hikes by the Bank of England. The result of the contest can be declared as soon as today, if Sunak emerges as the only candidate who gets enough support from MPs.
After serving as chancellor in Johnson’s government, a potential fad premier is seen as better equipped to deal with the country’s financial challenges. Liz Truss resigned last Thursday after just a few weeks in the top job and after a massive U-turn on her key pledge of no tax cuts, which also saw her fired as first-choice chancellor. His original economic plan, which included a massive increase in borrowing to pay for tax cuts, stunned investors.
“The market has faith in his financial strategies,” said Pooja Kumra, rate strategist at Toronto-Dominion Bank, of Sunak. “With an economically conservative PM, the amount of tightening required from the BoE also becomes easier.”
Sunak previously warned during the leadership campaign – in which he was beaten by a truce – that the outgoing administration’s fiscal measures would push Britain’s economy to the brink of collapse. This explains some of the positive reaction on Monday, while the former chancellor has given no public indication of what he will do as prime minister since the summer months.
Traders continued to bet on the extent of the increase made by the Bank of England. The key rate is now seen to peak at around 5.12% till August. Expectations of a one percentage point increase at the policymakers’ meeting next Thursday have also faded, though 75 basis points growth is still in full swing.
Penny Mordaunt is standing in Sunak’s way, though her public support from Tory lawmakers falls short of the 100 votes needed for the nomination. He could see a potentially named leader as soon as this afternoon, with Chancellor of the Exchequer Jeremy Hunt’s medium-term fiscal policy statement due a week today. Hunt’s appointment to reverse truss policies has already helped calm markets.
Kit Jux, chief FX strategist at Société Générale SA, said, “I think the assumption is that Sunk wins, Hunt stays at No. 11 and his current financial plans are supported. Those are the easiest changes to fiscal policy. represent.”
many headwinds
Once initial optimism fades, the focus is likely to return to Britain’s bleak economic outlook: inflation at 40-year highs, rising interest rates, depressed consumer sentiment, and a potentially severe recession. The net issue of Gilt for the next financial year remains huge and the cost of borrowing is high.
The price of some so called truss premium is still in gilt. The 10-year yields, which closed on September 22, a day before the truce’s mini-budget, are trading just below 4%, about 50 basis points higher. Plans set that day set in motion a bond route that pushed yields to their highest levels in years and forced the central bank to take steps to stabilize markets.
The pound previously crossed $1.14, up 0.9%, but has since erased much of that move. This is well below the peaks reached during the first leadership competition in the summer, further weighed down by heavy economic and fiscal constraints.
Moody’s Investors Service on Friday revised its outlook for UK credit scores to negative. The rating firm said the change in outlook was driven by “increased unpredictability in policy making” and “risks from higher borrowings” amid weak growth prospects and higher inflation.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)