What weeks of embarrassing chaos and turmoil in London. Liz Truss spent a historically short period, approaching the collapse of UK capital markets by wanting to implement massive tax cuts that were to be funded entirely on credit. The markets caused bond prices to fall and the Bank of England was forced to intervene. Liz Truss had to leave on Thursday last week step backAnd now the Conservatives have appointed a successor in no time at all. Rishi Sunak became British Prime Minister after his last rival, Benny Mordaunt, withdrew from the race at 10 Downing Street. Markets reward conservatives for making an economically sound choice. The yield on UK 10-year government bonds fell from 4.06 per cent to 3.82 per cent on Friday evening – so bond prices are rising. In the chart we see the turbulent development of the yield since mid-September.
Bloomberg recently reported, “We all owe it to the country, to each other, and to Rishi to unite and work together for the good of the nation,” Mordaunt said in a Twitter statement. The ruling Conservative Party confirmed the election of Sunak as leader, who will address MPs soon.
Remarkable transformation of Rishi Sunak – he was right to warn him
It’s a notable turnaround in Sunak’s political fortunes after the former Chancellor of the Exchequer left Boris Johnson’s government in July and then lost to Liz Truss in the last Conservative Party leadership election in the summer. But his repeated warnings that their plans would unleash economic chaos proved true, putting him center stage as Truss’ presidency collapsed.
However, given the bitterness and division in the Conservative Party, Sunak was not a safe candidate. Still battered in the eyes of many Tory MPs for his role in Johnson’s ouster, the ex-prime minister’s weekend flirtation with a gruesome comeback just months after his dismissal threatened to briefly dazzle Sunak’s hopes.
Competitors are eliminated
In the end, Johnson withdrew without the support of the 100 Conservative Party members needed to officially run for office. Mordaunt also withdrew before influential Conservative MP Graham Brady announced which candidates had crossed that threshold.
It marked the coronation of 42-year-old Sunak, who would become the UK’s first Hindu prime minister and the country’s youngest prime minister in more than 200 years. The grassroots Conservatives, who had the last word when Truss last beat Sunak, will have no say this time around.
But Sunak now faces the daunting task of uniting a party that has gone through months of turmoil and continues to play with key issues such as Brexit and the economy. Some Conservative MPs believe the party has no mandate to govern after the second change of party leader since Johnson’s victory in the 2019 general election. “It will now be impossible to avoid a general election,” former culture minister Nadine Dorries said on Twitter.
Truss’ decision to resign came after weeks of turmoil as investors dumped British assets. Their economic plan, which includes borrowing to fund massive tax cuts, has shaken markets and turned voters against conservatives in record numbers.
After sacking its first finance minister and longtime political ally Kwasi Quarting, Truss brought Jeremy Hunt – who backed Sunak on Sunday – to power in a bid to restore calm. Hunt succeeded to some extent, but it also set the government on a path to impose another round of strict austerity measures at a politically sensitive time as the British grapple with the rising cost of living.
In a column in The Telegraph late Sunday, Hunt indicated that he agreed with Sunak on how to handle the economy. Hunt said Sunak “will turn the tide of things wrong, make decisions in the national interest, and rebuild the extraordinary potential of our economy.”
Hunt is due to make a major statement on the Treasury’s tax and spending plans on October 31, the date chosen to better inform the Bank of England on how quickly it should raise interest rates. British bonds rose at the opening on Monday amid expectations from Prime Minister Sunak.
FMW / Bloomberg / Chart TradingView
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