Financial markets have reacted calmly as it emerged that Rishi Sunak is set to be the UK’s next prime minister.
The pound was broadly unchanged against the dollar yesterday and government borrowing costs stayed lower after Commons leader Penny Mordaunt dropped out of the leadership race.
Earlier in the day, the pound had risen close to $1.14 against the dollar before falling back.
Former PM Boris Johnson withdrew from of the contest on Sunday.
Last month, sterling plunged to a record low against the dollar and government borrowing costs rose sharply in the aftermath of outgoing Prime Minister Liz Truss’s mini-budget.
Investors were spooked after then-Chancellor Kwasi Kwarteng promised major tax cuts without saying how they would be paid for, something Mr Sunak warned about during this summer’s Tory leadership contest.
Last week, new Chancellor Jeremy Hunt withdrew almost all of Truss’s tax cuts in a bid to stabilise the financial markets but they have remained jittery.
On Friday, the pound fell as low as $1.11 and government borrowing costs rose amid continued political uncertainty and fresh warnings about the UK economy.
On Monday, government borrowing costs fell, with the interest rate—or yield— on bonds due to be repaid in 30 years’ time dropping to 3.8 per cent.
The rate had hit 5.17 per cent on 28 September after the mini-budget and a subsequent pledge by Mr Kwarteng to announce more tax cuts, prompting interventions by the Bank of England.
Hunt—who is backing Sunak—is scheduled to set out the government’s economic plan for taxes and spending on 31 October.
He has warned the government is facing “decisions of eye-watering difficulty” (BBC)