Financial markets warm to Rishi Sunak as UK Prime Minister
/ Our Today
administratorPound was unchanged against the dollar while borrowing costs stayed lower
Financial markets across the globe have reacted calmly, as it emerged that Rishi Sunak was set to be the United Kingdom’s next prime minister.
The UK pound sterling was broadly unchanged against the dollar today (October 24) while government borrowing costs stayed lower after Commons leader Penny Mordaunt dropped out of the leadership race. Former PM, Boris Johnson, withdrew from the prime ministerial race yesterday.
Earlier in the day, the pound had risen close to US$1.14 before falling back. Last month, the pound plunged to a record low against the dollar and government borrowing costs rose sharply in the aftermath of outgoing Prime Minister Liz Truss’s mini-budget.
The BBC reported today that interest rate on bonds due to be repaid in 30 years’ time dropped to 3.8 per cent. The rate had hit 5.17 per cent on September 28 after the mini-budget and a subsequent pledge by former Chancellor Kwasi Kwarteng to announce more tax cuts.
Market jitters from Kwarteng pledge
Investors were spooked Kwarteng promised major tax cuts without saying how they would be paid for – something Sunak warned about during this summer’s Tory leadership contest. Last week, new Chancellor, Jeremy Hunt withdrew almost all of Truss’s tax cuts in a bid to stabilise the financial markets but they have remained jittery.
Hunt – who is backing Sunak – is scheduled to set out the government’s economic plan for taxes and spending on October 31. He has conceded that the government is facing “decisions of eye-watering difficulty”.
Today financier and long-term Tory supporter, Guy Hands argued that the Conservative Party was not fit to run the country and risked having to ask the International Monetary Fund (IMF) for a bailout. He warned that the UK was headed for higher taxes, reduced public services and higher interest rates which would “eventually” lead to a bailout from the IMF “like we were in the 70s”.
At the weekend, the former governor of the Bank of England, Lord Mervyn King warned that the UK is facing a “more difficult” era of austerity than the one after the 2008 financial crisis in order to stabilise the economy. He said the average person could face “significantly higher taxes” to fund public spending.
Pound under pressure
The pound has been under pressure recently due to the strength of the US dollar. However, the pound’s weakness in recent weeks has been mostly tied to mounting concerns about the outlook for the UK’s economy and public finances.
The UK has been borrowing billions of pounds to limit energy bill rises for households and businesses. Government borrowing was £20 billion in September, up £2.2 billion from a year earlier, the Office for National Statistics said.
This was the second highest September borrowing since monthly records began in 1993. The Institute for Fiscal Studies think tank predicted borrowing this year could reach £194 billion, almost double the figure previously forecast by the Office for Budget Responsibility.
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