Prime Minister Sunak; some early reactions

Markets respond favourably as Rishi Sunak is set to be next PM, but fundamentals remain a concern

Piero Cingari, Market Specialist at Capital.com: “Markets are so far responding favourably to the prospect of Rishi Sunak, Britain’s former chancellor, becoming the next prime minister. As of midday [UK time], 10-year gilt yields are down 15bps, while 2-year gilt yields have decreased by 22bps from its Friday close. GBP/USD is broadly flat on the day at 1.13, having retraced slightly after reaching an intraday high of 1.1376.

Rishi Sunak is seen to possess the credibility markets require following a period of violent volatility in UK assets. Unlike his predecessor, Liz Truss, Sunak is not promoting unconventional fiscal policies aimed at widening the deficit and creating further inflationary pressures.

In the short term, the appointment of Rishi Sunak as the UK’s next PM may lessen some of the pressure and volatility in the gilt market but fundamental issues remain for the medium term. The Bank of England (BoE) still faces a tricky balancing act — on the one hand, the BoE still needs to raise rates materially from here especially as inflation is likely to climb further. This might continue to exert upward pressure on gilt yields. On the other hand a rising rate environment might increase the the prospect of a recession, declining real incomes and softening demand in the economy—all of which will likely add further pressure on the pound.”

 
Mohsin Rashid, Co-founder of ZIPZERO, said: “The arrival of Rishi Sunak into Number 10 is an incredible moment for British diversity. He enters as the first person of colour to become Prime Minister of the UK. Unfortunately, he also enters six weeks too late.

“In the summer, Sunak lost because he sold a tougher, more economically responsible, future to the nation. The near self-inflicted collapse of the British economy means that that future could be even graver. Within this rigid framework, Sunak must find room to support families.

“The impact of rising energy prices is affecting every corner of the country. We have seen reports of the most vulnerable no longer being able to afford to take the bus to work or enjoy the luxury of a kettle. Modern Britain is becoming numb to such bleak tales. Sunak must reinstate compassion at the heart of government and develop a support package with long-term aspirations.”

*ZIPZERO recently made headlines across the UK, including The Express, Daily Mirror, Sky News and City AM, with independent research revealing the impact of the cost of living crisis. Mohsin has represented the company, sharing his insights across trade publications and on nationally televised news. 
 
Andrew Megson, CEO of My Pension Expert, said: “An incredible amount of chaos has ensued in the six weeks since Rishi Sunak’s failed first attempt to become Prime Minister. Now, he has the chance to prove himself – in the biggest way possible – by extinguishing the fires set alight during Truss’ 45-day reign of market crashes and embarrassing U-turns.

“Market stability will be a priority. Sunak’s first leadership campaign was led on a promise of fiscally conservative policies, which has already pleased the markets and given the pound a boost. However, it’s also crucial that the new PM focuses on immediate reassurances for Britons struggling to stay afloat amid a soaring cost-of-living crisis. Confirming his stance on key policies such as the triple lock, or benefits cuts, would be a step in the right direction.

“Sunak will be keen to hit the ground running and deliver on his previous promises of fiscal responsibility. However, he must balance this with the appropriate support, if he is to restore the public’s confidence in their financial futures, and indeed Tory economic policy. Only time will tell if this will be the case.”