Truss resigns; Sunak wins bid for PM; Markets tepidly rally​

By Jake Rickman
Image credit - ComposedPix/Shutterstock.com​

What do you need to know this week?

Someone once said, “There are decades where nothing happens; and there are weeks where decades happen.” No doubt the past few weeks are contenders for being among the most momentous few in recent British history.

Last Thursday, Liz Truss announced her resignation after 45 days in office — the shortest premiership in history. Shortly thereafter, despite fears of a resultant power vacuum, on Monday, the Conservative Party coalesced around Rishi Sunak after former PM Boris Johnson dropped out.

Remarkable is the fact that despite Sunak’s repeated criticism of Truss’ economic plans as “dangerous” and ill-conceived during the previous leadership race, Sunak ultimately lost the bid. However, Sunak’s predictions were borne out, as the market reacted violently to the Truss-Kwarteng “mini-budget” — a response that largely led to Truss’ resignation.

Markets reacted positively to the announcement that Sunak had won the leadership contest, with the pound climbing a modest 1% against the dollar and the price of long-term bonds likewise making a tepid rally.

Why is this important for your interviews?

Uncertainty of any sort is the market’s kryptonite. Political instability amongst the Tories ultimately spilled over into economic uncertainty, which saw key indicators of Britain’s economic health plummet, including the price of government bonds and the value of its currency.

The promise of a Sunak premiership is therefore clearly to the preference of investors, which tend to view his economic agenda as pragmatic and sensible. Considering his credentials, which include stints as an analyst at both Goldman Sachs and the hedge fund CIF, it makes sense why the market generally prefers Sunak — he’s one of them.

However, Sunak must contend with deep structural issues including a mounting government budget deficit, entrenched inflation, and the ongoing energy crisis. If he appears unable or unwilling to take sufficient steps, investors may retreat once more away from their exposure to Britain — something that could ultimately result in a general election and an electoral wipe-out of the Tories.

The implications of such an outcome could compromise Britain’s reputation as a nation with a stable economy. In the long run, this would threaten London’s status as the financial and legal capital of the world.