Markets react well to Sunak’s victory for now
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Markets appear to react well to Rishi Sunak’s appointment as the Conservative Party leader and the country’s Prime Minister in the short term, but what do experts think the new PM should do to fix the economy?
Yesterday afternoon the former chancellor became PM after Penny Mordaunt and Boris Johnson dropped out of the Tory leadership race.
James Athey, investment director at investment managers abrdn, described the outcome as “the most market friendly one that was possible in the short term” but added: “The economic future however remains fraught; inflation remains far too high and the Bank of England hasn’t yet really grasped the nettle. As such, the future is far from ideal for UK investors.”
Schroders economist George Brown said investors need to be reassured the public finances are “on a sustainable path”.
“Markets have reacted positively to his appointment on account of his fiscally conservative reputation and prior experience as chancellor,” he said.
“But this credibility needs to be cemented by the fiscal statement scheduled for 31 October.”
Brown added the new PM must reunite Conservative MPs and win back voters ahead of the next general election partly because of the reputational damage suffered by his party over the past month.
In addition, as a former chancellor, Sunak will be “acutely aware” of the need to bring down the UK’s borrowing costs by reducing spreads, Brown concluded.
“Sunak therefore has no choice but to level with the public that difficult decisions need to be taken in the best interests of the country.”
Can Sunak bring stability after pension chaos?
The pension triple lock remains one significant issue to be resolved, according to Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown.
Liz Truss’s commitment that the triple lock would be protected were placed against a backdrop of her Chancellor, Jeremy Hunt refusing to confirm any such thing, said Morrissey.
“Truss has now gone, and if Hunt remains in place the new PM will be under pressure to confirm whether it stays or goes.”
Sunak has defended the triple lock in the past, Morrissey said, but he was the one who took the decision to suspend it last year as the furlough scheme distorted earnings figures.
"Given the current need to cut back on costs, he may feel he has little choice but to do it again. It will be a tricky decision to take though given rampaging inflation has left many pensioners in severe financial difficulty.”
What do you think should be the new PM’s priorities?
