Pound rises and gilt yields fall as Johnson pulls out of leadership race
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Boris Johnson’s withdrawal from the Conservative Party leadership has brought a “sigh of relief for sterling” with the pound up by more than 0.6% to $1.136 this morning, according to Susannah Streeter, senior investment and markets analyst at investment platform Hargreaves Lansdown.
Former prime minister Johnson removed himself from returning to 10 Downing Street on Sunday stating “this is simply not the right time” following Liz Truss’s resignation as party leader last week.
Streeter said Johnson “had threatened to cause fresh political instability”, given that it’s less than two months since he left the job, so his retreat from the race brought “a sigh of relief for sterling and an even bigger sigh of relief on the bond markets”.
Former chancellor Rishi Sunak is currently the bookies’ favourite to take the top job.
With Truss’s resignation and Johnson out of the running “it’s been enough to help push down UK borrowing costs”, according to Streeter.
“Ten-year gilt yields have fallen back sharply from above 4% on Friday to 3.8% in early trading. It’s an indication that bond vigilantes have been pacified by the expectations of a calmer political horizon ahead with fiscal responsibility forecast to be the new mantra of the incoming Prime Minister.”
But she warned whoever becomes the leader for the Conservative Party faces “a daunting task” given the looming recession, volatile energy prices, continued supply chain tangles and labour shortfalls and the Bank of England’s determination to raise interest rates to bring inflation under control.
How do you think the market will react to a new prime minister?
