Boris would refuse ‘demotion’ to Sunak’s cabinet says Bromovsky
The pound has continued to tick upwards as the markets opened after Boris Johnson announced he will not run to be prime minister again. Sterling continued its multi-day rise, building from its low of below 1.11 dollars at about midday on Friday to reach close to 1.14 as UK stock markets opened today (October 24).
However, some investors may still worry the political uncertainty is far from over given Mr Sunak is not well loved by some right-wingers in the Tory party with fresh divisions possibly erupting at any time.
Candidates need at least 100 MPs to nominate them by today to make it onto the ballot paper for the parliamentary stage of the election process.
Leader of the House Penny Mordaunt will need a tidal wave of support to reach the requisite 100 nominations, though there are signs she is gaining some momentum.
Damian Collins, a supporter of Ms Mordaunt’s, said it will be “all to play for” in the Conservative leadership contest if there is a ballot of party members.
The tech and digital economy minister claimed “a lot of people” had “instantly” switched their allegiance from Mr Johnson to Ms Mordaunt after the former PM ruled himself out of the race.
Sterling has risen against the dollar after Boris Johnson bowed out of the leadership race
A view of the London Stock Exchange
Unlike some of her rivals, Penny Mordaunt is relatively unknown to the British public. From her career as a magician’s assistant and her appearance on ITV show Splash alongside Tom Daley, find out more about who the politician really is.
Click here to learn more about Ms Mordaunt’s home life, education, career and voting record.
Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, told Express.co.uk: “I think the cult of Boris that was hanging over the Conservatives is, for now, broken and that has sent the pound higher. However, there’s a growing chance Penny Mordaunt could secure the backing of MPs. We’ve seen the pound lose a tiny bit over the gains it made. This is obviously because you could see a Groundhog Day emerging.
“However, overall, the pound is still higher, indicating both candidates are better than the alternative scenario.”
Mr Johnson dramatically withdrew from the race, having never officially entered, claiming he had the numbers but admitting he could not unite his warring party.
In a statement issued on Sunday evening, he said there was a “very good chance” he could have been back in No 10 by the end of the week if he had stood.
However, he said his efforts to reach out to his rivals – Mr Sunak and Ms Mordaunt – to work together in the national interest had not been successful so he was dropping out.
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A board displaying share prices in New York
A view of the City of London and Bank of England
Mr Sunak said in a statement announcing his candidacy: “I served as your chancellor, helping to steer our economy through the toughest of times.
“The challenges we face now are even greater. But the opportunities, if we make the right choice, are phenomenal.
“I have the track record of delivery, a clear plan to fix the biggest problems we face and I will deliver on the promise of the 2019 manifesto.
“There will be integrity, professionalism and accountability at every level of the government I lead and I will work day in and day out to get the job done.”
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UK interest rate rises
Thomas Moore, Senior Investment Director at abrdn, told the BBC: “I read the Rishi Sunak statement and I thought it was written as much for financial markets as it was for the Conservative members who may end up voting for him or for Penny Mordaunt. He talks about integrity, professionalism, accountability at every level of Government. He’s talking about fixing the economy, the profound economic crisis, steering the economy through the toughest of times. All of this is designed to reassure financial markets as well as get him into Number 10.”
Asked if the situation would be different had Mr Johnson not pulled out of the running, Mr Moore said: “Yes, I think it would be. It was interesting when Boris Johnson flew back from the Caribbean the pound sank on Friday, which tells you something. And then today the pound against the dollar is doing quite well. It’s doing even better against the euro so we’re back to pre-mini budget levels, which… is a bit of positivity on a Monday.”
On whether Mr Johnson’s pulling out of the race changes global investors’ view of the UK, Megan Greene, Global Chief Economist for the Kroll Institute, told the same broadcaster: “I think that should help. Two weeks ago the UK looked completely uninvestable for investors and I think investors are still wary because there’s so much uncertainty. Boris Johnson pulling out gives us more certainty. It seems like Rishi Sunak will be the next prime minister, but even then the UK has a really tough line to walk because, on the one hand it can’t provide these budgets that seem fiscally irresponsible. We’ve seen what happens with the markets then.
“But equally Rishi Sunak is going to come and probably announce quite a lot of austerity and he can’t go too far on that either because then the markets will look at that and think the UK is never going to grow. It’s already got 10 percent inflation. It’s facing Brexit headwinds. The winter is going to be tough. So even without all the political drama the economic environment in the UK is incredibly difficult so the Government can’t spend too much, but it also can’t retrench too much because either way investors will think the UK’s fiscal situation is unsustainable.”
Prime Minister Liz Truss outside Number 10
Ms Greene explained bond markets have largely recovered from the fall out from the mini-budget, suggesting investors are more interested in the UK, thanks to the Bank of England’s intervention.
Ms Streeter added that she expected 10 year and 30 year gilt yields to fall back now Mr Johnson has ruled himself out of the race, but she warned whoever become the next prime minister will face a number of challenges, including looming recession, volatile energy prices and labour shortfalls.
There were large falls in gilt yields when the market opened this morning.
The implied interest rate on 10 year UK Government bonds was down from 4.1 percent to 3.8 percent at 8.08am.
The FTSE 100 started the day with a 0.5 percent rise, pushing it above the 7,000-point mark for the first time in a week.
The UK’s main equity indexes ended the week higher last Friday, supported by commodity stocks as hopes of smaller central bank rate hikes out of the world’s largest economy offset woes on domestic political uncertainty.
It comes as the Federal Reserve debates when to slow the pace of interest rate hikes with talk it might signal a step back at its November meeting.
Markets are still priced for a rise of 75 basis points next month, but have scaled back bets on a matching move in December.
Ms Streeter said: “The Fed has been ahead of the curve in putting up interest rates. We’re behind the curve, which is why the pound is so low. If [the Fed] doesn’t have to keep pushing up interest rates, that means the pound will lift, meaning imports will be more favourable.”
In a statement issued after markets opened, Ms Streeter added: “On a broader level, investors are catching glimpses of light at the end of a tough tunnel of monetary tightening and that’s helping to inject some optimism into financial markets. Even though more rate hikes are expected from the Federal reserve, comments from Janet Yellen, the US Treasury Secretary that high inflation does not look like it’s become entrenched in the economy, has led to hopes that there will be a gentler path of rate rises ahead.
“There is likely to be a certain amount of treading water ahead of a heaving week of results with some big hitters on indices reporting financial results.
“The impact of the super-strong dollar is expected to weigh in pretty hard on the bottom line of some of the world’s biggest companies. From Alphabet on Tuesday to Amazon on Thursday, investors will be assessing the currency headwinds for their overseas earnings as revenues will be reduced when converted back to dollars.”