Pound falls as Rishi Sunak prepares to tackle UK’s massive economic issues

• Rishi Sunak, will have a difficult time imposing stability during a period of unprecedented political and financial market instability.
• When King Charles III names him to the position, he will formally assume it.
• In October, a carefully monitored indicator of economic activity hit a 21-month low.

Britain’s third prime minister in seven weeks, Rishi Sunak, will have a difficult time imposing stability during a period of unprecedented political and financial market instability. But guiding the nation through a recession is likely to be just as difficult as his other duty.

Former rival Liz Truss, who will serve as the shortest-serving prime minister in British history, lost the contest to succeed him as finance minister. When King Charles III names him to the position, he will formally assume it.

The withdrawal of competitor Boris Johnson earlier on Monday paved Sunak’s road to power, and the pound increased against the US dollar. However, it was last down 0.2% to below $1.128. Benchmark 10-year UK bond yields, which move counter to prices, decreased to 3.82%.

Sunak ran for the position over the summer, promising to assist families in dealing with the rising cost of living, which is leading many to cut back on spending. Taxes would be reduced, he declared, but only until price pressures subsided.

But since then, the outlook for the economy has drastically worsened, in part due to the market instability caused by Truss’ now-abandoned intention to cut taxes as soon as possible and increase government borrowing.

In October, a carefully monitored indicator of economic activity hit a 21-month low. The data, according to S&P Global, which monitors it, essentially verifies that the UK is in a recession.

“The heightened political and economic uncertainty has caused business activity to fall at a rate not seen since the global financial crisis in 2009, if pandemic lockdown months are excluded,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Any economic stimulus that goes beyond providing immediate assistance for energy costs may prove to be a nonstarter for Sunak, as Truss’ failed tax cut scheme shown.

“A key focus for the next Prime Minister and their chosen Chancellor needs to be fiscal responsibility,” Carl Emmerson, deputy director of the Institute for Fiscal Studies, said in a statement. “We need a credible plan to ensure that government debt can be expected to fall over the medium-term.”

Despite a top Bank of England official suggesting last week that investors may be pricing in too many interest rate increases, the central bank is anticipated to stay aggressive in the near term in its campaign to bring inflation under control.

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