Rishi Sunak’s appointment as the UK’s third PM in two months was welcomed by markets in the UK today, recognising that for now at least there is someone in charge who might have a better understanding of the requirements in the current difficult economic backdrop.
Stability was the watchword of many of the comments following his appointment, but nearly all acknowledged he has a very tricky balancing act.
Rising inflation recession, an ongoing cost-of-living crisis, Brexity, sky-high energy prices and the Ukraine war are just some of the things waiting for the new PM in his inbox, but for now, markets seemingly just want to see government unity and purpose.
Free trade’s senior analyst Dan Lane summed it up thus: "Sunak’s #1 task: stop the no.10 turnstile and keep austerity talk to a minimum.
“Bond markets have shown just how ready they are to punish what they see as reckless use of the public purse so fiscal responsibility has to be the name of the game.
"But Rishi and co. can’t afford to bring in swathes of austerity measures either. Markets need to see avenues for growth too, and it’s up to the new administration to thread that needle."
He adds that one idea that might re-emerge in the next few weeks is around boosting tech investment in the UK, while a potential boon is that he won't have to cut taxes quickly after his predecessor’s attempts were shot to pieces.
Danni Hewson, AJ Bell financial analyst, added: “At least Rishi Sunak knows he’s got the markets on his side. Investors clearly hope Sunak will stabilise the economy and the political situation – though it’s hard to work out at this point which is the harder task.
“As well as the recovery in sterling and the reduced cost of government borrowing, Sunak will be pleased to see European gas prices going in the right direction thanks to mild temperatures across the continent. And while the outlook is still filled with dark clouds, for the first time in a while it is possible to spy a chink of light.”
Shevaun Haviland, director general of the British Chambers of Commerce, said the chaos of recent months had been “hugely damaging” and “must now come to an end”.
“The new Prime Minister must be a steady hand on the tiller to see the economy through the challenging conditions ahead.
“We cannot afford to see any more flip-flopping on policies – the UK’s businesses need a sustainable, long-term economic plan they can believe in.”
The BCC said it would write to the new PM for fully-costed plans to tackle the issues facing businesses.
Ruth Gregory, senior UK economist at Capital Economics, warned the new PM is facing a 'tough time ahead':
"The new PM will have to work hard to restore credibility in the eyes of the markets by revealing measures to fill the hole in the public finances.
"That leaves the risks to our forecast that the economy will enter a recession involving a peak-to-trough fall in GDP of around 2% skewed to the downside."
CEO of PM Alpha, Tom Douie outlined his belief that Sunak was the only viable option.
He said: "Sunak’s experience in financial services, the markets and as Chancellor will provide a positive backdrop to private enterprise in general and private markets in particular, as he will seek to realise some benefits from Brexit and encourage both domestic and international inward investment to UK plc.
"The resultant market stability will be helpful for the overall investment environment. A stronger pound will contribute to an easing of the cost of living crisis and inflation."