FTSE jumps by almost one per cent, pound holds steady at $1.13 and gilt yields tumble as Rishi Sunak is confirmed as the next Prime Minister
- The value of the pound dipped briefly but then rallied above its earlier position
- The FTSE jumped by around one per cent as traders reacted positively
- The gilt market cooled further, making it cheaper for Government to borrow
- Expert told MailOnline Mr Sunak was investors’ ‘preferred candidate’ for PM
The FTSE jumped by nearly one per cent and the pound held steady at $1.13 against the dollar as the markets reacted to news that Rishi Sunak will be the next Prime Minister.
The pound did fall briefly after Ms Mordaunt dropped out of the Tory leadership contest shortly before 2pm but its value then climbed back to just over $1.13 and then rose above where it had been before the announcement.
The FTSE 100, which had down earlier today as a stronger pound weighed on multinationals, also rose around one per cent in reaction to the news.
At 3pm, it was rising above 7,035 and had been at around 7,016 just before Ms Mordaunt’s departure from the leadership race.
Meanwhile, government borrowing costs fell further after earlier downward moves this morning.
The interest rate on a 30-year UK Treasury gilt was down to 3.8 per cent at 3pm. It had been at around 3.9 per cent this morning.
The FTSE jumped by nearly one per cent and the pound held steady at $1.13 against the dollar as the markets reacted to news that Rishi Sunak will be the next Prime Minister
The FTSE 100, which had down earlier today as a stronger pound weighed on multinationals, also rose around one per cent in reaction to the news
It comes after experts had explained the pound’s earlier rise this morning, saying Mr Sunak was the markets’ ‘preferred candidate’.
Victoria Scholar, head of investment at Interactive Investor, told MailOnline: ‘The pound is trading higher, reflecting increase optimism that the financial markets’ preferred prime ministerial candidate Rishi Sunak appears to be in pole position after Boris Johnson dropped out of the race.
‘With Sunak in front, political uncertainty is diminishing, paving the way for a new more economically competent leader as soon as today.
‘The FTSE 250 (which is much more closely correlated to the UK economy than the FTSE 100) is trading higher pricing in increased prospects for the economy with a potential new leadership focused on sound money and fiscal prudence rather than unfunded tax cuts and unnecessary borrowing.
‘The FTSE 100 is lagging behind, weighed down by the negative impact of a stronger currency and weakness in China’s markets which is pushing Asia-focused stocks like Rio Tinto and Standard Chartered to the bottom of the index.’
Mr Sunak will be feeling vindicated after repeatedly warning that Liz Truss’s economic policies would be badly received by global financial markets.
Last month, the pound plunged to a record low against the dollar and government borrowing costs rose sharply after Kwasi Kwarteng’s mini budget brought in a swathe of tax cuts without saying how they would be funded.
New Chancellor Jeremy Hunt last week withdrew almost all of Ms Truss’s tax cuts in a bid to stabilise the financial markets but they have remained unstable.
ING strategist Chris Turner said: ‘Sterling price action seems to assume the advent of a Sunak/Hunt ticket as PM/Chancellor and a focus on trying to restore some of the UK’s lost fiscal credibility.
‘After the failed experiment with Trussonomics, the challenge facing the new team will be harder than the one that existed earlier this summer and probably a reason why international investors will not want to chase GBP/USD above the 1.15 level.’
This afternoon, Mr Sunak dramatically seized the keys to Downing Street today after Penny Mordaunt followed Boris Johnson in dropping out of the leadership race.
Mr Sunak has been named the new Tory chief – and the incoming PM – after his sole remaining rival Ms Mordaunt failed to make the threshold of 100 nominations needed to trigger a run-off.
The new premier received a rapturous reception when he made a 10-minute private speech to MPs at Parliament at 2.30pm, giving the thumbs up to waiting journalists. He could be installed as PM by King Charles as early as tomorrow – or possibly even tonight.
He told his troops that Mr Johnson, Ms Mordaunt and Ms Truss were ‘all good Conservative colleagues and friends’, adding: ‘We’re united behind the policy and now cannot afford the indulgence of division over personality.’
‘We have one chance. It is unite or die,’ he said.
Ms Mordaunt had sounded defiant up until moments before the announcement, with allies claiming she had more than 90 supporters even though only 25 were publicly declared.
However, in a statement at 1.58pm Ms Mordaunt tweeted to admit she could not take the contest to the next phase. ‘Rishi has my full support,’ she posted.
Former PM Boris Johnson had also been set to face off against Mr Sunak but announced last night he was pulling out of the race.
Mr Johnson claimed he reached the ‘very high hurdle of 102 nominations’ and believed there was a ‘very good chance’ that he would have been successful in the leadership contest.
But the former PM added that continuing his bid for a return was ‘simply not the right thing to do’, citing the need to ‘unite’ the party.
Mr Johnson dramatically pulled out of the contest last night, saying that continuing his bid for a return was ‘simply not the right thing to do’, citing the need to ‘unite’ the party. Above: Mr Johnson after arriving back in the UK; Mr Sunak leaving his home today
Mr Johnson had been dealt a series of blows by big Tory players such as former Home Secretary Suella Braverman and Brexiteer Steve Baker pledging their support to Mr Sunak.
However, his decision took even his biggest champions by surprise. Cabinet minister Nadhim Zahawi was embarrassed as an article praising ‘Johnson 2.0’ was published minutes before the withdrawal.
And one of Mr Johnson’s chief lieutenants, James Duddridge, tweeted to say ‘that was unexpected’. Both then switched allegiances to Mr Sunak, along with a host of others.
Michael Gove also lined up behind Mr Sunak, urging the party to unite and take the fight to Labour.
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