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Rishi Sunak to be UK Prime Minister

Bond yields are showing relief. The 30-year gilt benchmark yield is now back at 3.8% - compared to the short-lived Truss hysteria level of 5%.

24 October 2022

While the pound attempted a no-Boris relief rally following his withdrawal from the leadership contest late last night, the new heir to the keys of No. 10, Rishi Sunak, hasn’t exactly set the markets on fire just yet. Sterling has erased most of the rally earlier today after he was confirmed to be the new UK Prime Minster. His victory speech to fellow MPs at Westminster this afternoon was a closed-door affair so what are we to assume his policies will be if not a regurgitation of his failed leadership election promises from last month?

While sterling is more reflective of the economic direction which is dire, bond yields are most definitely showing relief. The 30-year gilt benchmark yield is now back at 3.8% - compared to the short-lived Truss hysteria level of 5% - a correspondingly healthy 29% increase in bond prices (the Bank of England (BoE) will be sitting on very handsome gains from its foray into the bond markets). The assumption is that the BoE will not need to be as aggressive now on rate policy as the fiscal giveaway suitcase has had its lid firmly shut again.

With no tax cuts on the horizon the immediate future looks bleak for the UK consumer base with the economy no doubt already in recession. While Sunak will inevitably restore a sense of union and relative calm within the beleaguered Tory party, with an economy sharply deteriorating and expected to be in recession for quite a while, there really is little he can do in the next two years to galvanise the Tory party’s chances at the next general election.

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Charles Hepworth

Investment Director
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