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Rishi Sunak was sworn in as the UK’s latest Prime Minister, following Liz Truss announcing her resignation just six weeks into the job. Analysts say this development has eased some of the nervousness regarding the outlook for the British economy.
How did the announcement of Rishi Sunak as PM affect the UK markets?
Analysts believe that Rishi Sunak is a “stabilising force” after the chaos unleashed by the 45-day tenure of Liz Truss. The new UK Prime Minister could have a calming effect on the markets.
In his inaugural speech, Sunak emphasised the importance of “economic stability and confidence” while warning that there were “difficult decisions to come.”
The largest asset manager in the world, BlackRock, upgraded UK gilts from underweight to neutral following the announcement of the new Prime Minister, saying that “perceptions of fiscal credibility had improved” for the UK.
The pound sterling rose against the dollar and euro, rallying to its highest levels since Liz Truss’ mini budget was released on September 23. The FTSE 100 also rose, driven by consumer-sensitive stocks and industrials. In fact, the EuroStoxx 600 also gained ground.
How to trade the Sunak impact?
Sunak is faced with political, macroeconomic and market challenges. How he chooses to deal with the current crises will define the markets in the short term. The financial markets are likely to continue to be volatile for some time. This is apparent from the fact that both the GBP and FTSE 100 have pared back their gains, which were driven by market optimism regarding the new PM.
The critical event to look out for this week is the Bank of England’s interest rate decision, which will be announced on November 3. Given that the new PM intends to take tough steps to curb inflation, the BoE could also choose a more hawkish stance. This could strengthen the GBP against weaker currencies, such as the Japanese yen.
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