Sterling rose and yields fell on Monday, with the craze seen as markets stabilized
London:
Britain’s next prime minister, former finance chief Rishi Sunak, has inherited Britain’s economy, which was headed for a recession before the recent turmoil triggered by Liz Truss.
Outgoing Prime Minister Truss resigned after his budget for debt-funded tax cuts sent a jolt to the markets, causing the pound to crash.
This has caused the government to take a U-turn on most of its budget, including rolling back a cap on rising energy bills, which have contributed heavily to the living crisis for millions of Britons.
Data Monday showed Britain’s economic slowdown worsened in October, with private sector output hitting a 21-month low.
“Flash PMI data from October showed the pace of economic decline following the recent political and financial market turmoil,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“Increasing political and economic uncertainty has caused business activity to fall at a rate not seen since the global financial crisis in 2009, if the pandemic lockdown months are excluded.”
Williamson said the coming data showed Britain was already in the throes of a recession.
The S&P Global/CIPS Flash UK Composite Purchasing Managers Index stood at 47.2 in October, down from 49.1 in September.
A figure less than 50 indicates contraction.
Britain is not alone, however, with separate S&P data pointing to an “imminent recession” in Germany, Europe’s largest economy.
‘Crazy stability’
Truss resigned last Thursday after just 44 days as prime minister. He replaced Boris Johnson on 6 September after a week-long campaign against Tory rival Sunak.
The former Chancellor of the Exchequer warned in the fight to succeed Johnson that the tax cuts promised by the truce when government debt had already risen over the Covid intervention were the wrong policy to proceed.
That proved correct as the budget dropped the pound to a record-low level against the dollar and prompted an increase in yields on government bonds.
Sterling rose and yields fell on Monday, with the craze seen as bringing stability to markets.
“Investors clearly expect the fad to stabilize the economy and the political situation – although it’s hard work at this point, which is hard work to do,” said Danny Hewson, financial analyst at AJ Bell.
“As well as improving sterling and lowering government borrowing costs (in the form of declining yields), Sunak will be pleased to see a fall in European gas prices”.
However, with UK inflation at a 40-year high above 10 per cent, the Bank of England is set to unveil another bumper interest rate hike at a regular policy meeting next week.
This will put further pressure on borrowers, including homeowners, who have seen mortgage rates rise in the wake of the government’s expensive budget.
Shewan Haviland, director general of the British Chambers of Commerce, urged Sunak to help businesses grappling with big energy bills.
“The political and economic uncertainty of the past few months has been extremely damaging to British business confidence and must end,” he said in a statement after Sunak’s new position was confirmed.
“The new prime minister needs to have a steady hand on the tiller to see the economy through the challenging conditions ahead.
“That means creating full-cost plans to tackle the big issues facing businesses; rising energy bills, labor shortages, rising inflation, and rising interest rates.”
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)