Pound gains as Rishi Sunak likely next PM
The pound has gained against the US dollar after former prime minister Boris Johnson quit the Tory leadership race, leaving the former chancellor Rishi Sunak the most likely to become PM today.
On Monday, sterling stood around 0.4% higher at $1.135.
On Friday when Liz Truss quit as PM, sterling fell as low as $1.11 amid all the political uncertainty and fresh warnings about the UK economy.
Rishi Sunak is now the clear frontrunner and could become the prime minister as early as today. The former chancellor has cleared the 100 thresholds easily.
Last night, Boris Johnson dropped out of the race saying that although he had the support he would not be able to unite the party.
Last month, sterling plunged to a record low against the dollar and the government borrowing costs rose sharply in the aftermath of Liz Truss’s disastrous mini-budget.
Investors were spooked after the mini-Budget promised major tax cuts and the then-chancellor Kwasi Kwarteng failed to say how those cuts would be paid for – something Sunak had warned during the summer leadership race.
Last week, new chancellor Jeremy Hunt ripped up most of the mini-Budget in a bid to stabilise the financial markets, but they’ve remained jittery.
Chancellor Hunt is backing Mr Sunak for PM – he’s due to set out his economic plan for taxes and spending on 31 October, although there are reports it might be delayed because of the race for No10.
Rishi Sunak as frontrunner should calm markets
Megan Greene, a global chief economist at the Kroll Institute consultancy, told the BBC’s Today programme that Mr Sunak’s position as the frontrunner “should help” calm the markets.
“Two weeks ago the UK looked completely un-investable,” she said, though she warned investors were “still wary”. “The UK has a really tough line to walk,” she said.
“On the one hand it can’t provide these budgets that are fiscally irresponsible, or that seem fiscally irresponsible, we’ve seen what happens with the market then, but equally Rishi Sunak is going to come and probably announce a lot of austerities and he can’t go too far on that end either because then the markets will look at that and think the UK is never going to grow.
“Even without all the political drama, the economic environment in the UK is incredibly difficult.”Megan Greene
Rishi Sunak next PM – why he’s the best choice
Rishi Sunak served as Chancellor under Boris Johnson and was seen as a safe pair of hands when it came to the country’s money. He was praised for steering the UK economy through the pandemic and its lockdowns.
During the summer leadership race, Sunak offered dire warnings about Liz Truss’s economic plans – calling them “fairytale economics”, something he clearly got right.
Sunak has credibility with the markets and the most important thing for the incoming leader is ensuring the markets are calm, that’s why he’s the most obvious choice for PM.
With Hunt in the Chancellor role and Sunak keeping a close eye, the markets will start to feel reassured. It certainly won’t do any harm having Sunak’s knowledge and experience in No 10 and overseeing No 11.