LONDON (Reuters) – Former British finance minister Rishi Sunak will be Britain’s next prime minister after his rivals withdrew from a race that analysts said eased some tension over Britain’s economic outlook, boosting domestic markets.
The 42-year-old will become the country’s third prime minister in less than two months, after his predecessor, Liz Truss, was ousted after just six weeks in office through an economic program that shook markets.
Ian Duncan Smith, Representative Ian Duncan Smith, said Sunak has not yet spoken publicly, but has told conservative lawmakers that his number one priority is economic stability, after which he will look to deliver on party promises in the 2019 election.
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BlackRock, the world’s largest asset manager, said on Monday it had upgraded UK bonds to underweight neutral, and said “perceptions of financial credibility have improved, although not completely”.
The pound bounced back into positive territory against the dollar, after briefly turning negative, while sensitive consumer stocks pushed the FTSE 100 higher on the day.
Stock: FTSE 100 (.FTSE) It rose 0.6% on the day, supported by the consumer and industrial sectors, but was underperformed by the broader European markets, with the STOXX 600 up 1.2%.
Forex: Sterling was down 0.1% against the dollar at $1.1291, after bouncing between the day’s high of $1.1402 and the low of $1.1275 in choppy trade.
Bond Markets: The 10-year Treasury yield fell 28 basis points at 3.78%, after hitting its lowest level since former Finance Minister Kwasi Quarting’s “mini-budget” on September 23.
Melanie Leech, chief executive of the British Property Consortium:
“The past few months have damaged the UK’s international reputation and economic standing, and the country urgently needs strong and competent leadership to rebuild confidence. The new Prime Minister needs to confirm their leadership team as soon as possible and provide clarity on their strategy to stabilize the economy and their policy priorities.
The real estate industry is ready to work with Rishi Sunak in creating a thriving economy and addressing regional disparities by providing the new homes, workspaces and leisure essential to revitalize our cities and main streets.”
Art Hogan, Chief Market Strategist, B. Riley Wealth, New York:
“A very quick decision on who is going to be the prime minister is sure to breathe a sigh of relief in the markets. If this is something that has been dragged on for an extended period of time, this uncertainty is surely going to wreak havoc both in UK bonds and in global stock markets,” he will explain. Time is how that happens in the medium to long term, but in the short term, I think a quick decision on Sunak is one of the welcome decisions the market here this morning. At least we’ve checked that box and it can move on to other things to worry about.” .
Josh Mahoney, Senior Market Analyst, IG Group, London:
“The news of Rishi Sunak’s successful bid for the new PM position has spared markets any additional uncertainty today, as the UK is set to be guided primarily through this crisis by two advisers.
Stunning bond markets have certainly responded positively, with lower yields bringing hope that we will see borrowing costs continue to decline after the turbulent gear period. However, with pro-growth policies becoming a thing of the past, the Pound is finding itself under pressure given the warning signs given by the collapsed PMI surveys released this morning.
Many hope that the more hawkish central bank and government policies will bring down inflation quickly without hurting the economy too much. However, traders will remain concerned that the economic fallout is more damaging than expected, and that inflation is keeping rates higher for longer.”
Paul Johnson, Director of the Institute for Fiscal Studies, speaking to BBC Television:
“One of the problems I think the new prime minister and his new chancellor face is that, given all the uncertainty that has arisen over the past few weeks, they may have to make more difficult decisions than they would otherwise have to. Because the markets are still somewhat terrified. And you’ll want to see some clear and decisive action, perhaps more than she would have asked (if) we haven’t been so upset over the past few weeks.”
Jason Paltrowitz, Director and Executive Vice President, Corporate Services, Foreign Markets Group, New York:
“From the US point of view, this will be seen as a positive step to create stability and clarity in the near future. US investors will want to see Sunak and, assuming he stays, Hunt, presents a deliberate and clear strategy for dealing with the continuing economic issues affecting the kingdom United”.
Ruth Gregory, Senior British Economist, Capital Economics, London:
“The drop in gold yields due to the news today that Rishi Sunak will become the next Prime Minister of the UK has reduced the chances of a major fiscal consolidation. However, the new Prime Minister will still have to work hard to restore stability in the eyes of financial markets.
This means that the risks to our forecast that the economy will enter a recession involving a peak-to-bottom decline in GDP of around 2% remain skewed to the downside.”
Michael Brown, Head of Logistics Intelligence, Caston, London:
“The announcement appears to have been well priced by this point – especially after notable gains for the British pound in opening Asia last night. Having said that, Sunak’s tenure as Prime Minister should restore a significant amount of credibility around UK policy, which is likely to limit Downside for sterling assets in the near term.”
Danny Hewson, Financial Analyst at AJ BELL, London:
“Markets are confident they know the kind of prime minister Rishi Sunak will probably be because they know what kind of advisor he was and clearly understood the potential damage of those unfunded tax cuts.
Yields are down, which is only indicative that the markets are feeling more comfortable and they feel once again that the UK is returning to the kind of economy they expect from an established economy rather than an emerging one.
With the pound, just because we have a new prime minister in office, all the issues just don’t go away and we still have a notable strength that the dollar has.”
Giles Coghlan, Analyst, HYCM, London:
“With Rishi Sunak named the UK’s third Prime Minister in three months, the question now is whether today’s events will mark the beginning of a bullish turn for the pound as confidence returns in the government’s fiscal plans.
However, as Sunak’s premiership unfolds, there are likely to be more challenging times ahead for the UK’s economy as it makes its way out of a deepening deflation and even the prospect of a general election – turmoil that could derail markets further.
However, there is one aspect of sterling help that is often overlooked. On the other side of the Atlantic, a slowdown in Fed policy is likely to help lift sterling as much, if not more, than British fiscal policy.”
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Additional reporting by Harry Robertson, Pansori Mayor, Danilo Masoni, William Schomberg and Samuel Indyk; writing by Amanda Cooper; Editing by Karen Stroecker
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