Sunak to be next UK prime minister: What you need to know

Sunak to be next UK prime minister: What you need to know

24 Oct    Finance News

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LONDON — Rishi Sunak will be Britain’s next prime minister after his rivals quit the race, following one of the most turbulent periods in British political history.

Following are latest events, comments and context:

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POLITICS

* Sunak, the 42-year-old former finance minister, will become Britain’s third prime minister in less than two months.

* His predecessor Liz Truss was brought down after just six weeks in office by her economic program which roiled financial markets, pushed up living costs for voters and enraged much of her own party.

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* Boris Johnson, who was ousted as prime minister by his lawmakers in July, was aiming to make what would have been an extraordinary political comeback, before quitting the race.

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* Former defense minister Penny Mordaunt had also joined the contest to become the country’s fifth prime minister in six years.

* Sunak, one of the wealthiest politicians in Westminster, will become prime minister when invited to form a government by King Charles.

* A former Goldman Sachs analyst, Sunak will be the United Kingdom’s first prime minister of Indian origin.

* He is tasked with steering the country through an economic crisis and mounting anger among some voters.

* A nationwide election need not be called for another two years, but opposition parties said voters should now be given a say.

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* The opposition Labour Party leads the government by more than 30 points in some opinion polls.

MARKETS

* The pound jumped briefly on news that Sunak was the only remaining candidate, but soon returned to its previous levels.

* Ten-year British government bond yields are down 22 basis points on the day at 3.83%.

* The medium term outlook for the pound looks troubled however.

“We maybe have a bit less chaos with Boris Johnson not running but it’s not like Rishi Sunak has a strong program presenting greater horizons ahead for the UK economy when the backdrop is still the backdrop,” said John Hardy head of FX strategy at Saxo Bank.

ECONOMY

* British shoppers cut their spending sharply in September while public borrowing grew by more than expected, underscoring the challenge facing finance minister Jeremy Hunt.

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* Hunt reiterated on Friday that the government will do “whatever is necessary” to drive down debt in the medium term.

* Ruth Gregory, senior UK economist at Capital Economics in London said: “The fall in gilt yields on the news today that Rishi Sunak will become the UK’s next Prime Minister has reduced the chances of a significant fiscal consolidation. Even so, the new PM will still have to work hard to restore stability in the eyes of the financial markets.”

WHAT’S BEHIND THE CRISIS?

* Britain’s financial markets were plunged into turmoil on Sept. 23 after then-new finance minister Kwasi Kwarteng announced billions of pounds of unfunded tax cuts.

* The Bank of England was forced into emergency bond-buying to stem a sharp sell-off in Britain’s $2.3 trillion government bond market that threatened to wreak havoc in the pension industry and increase recession risks.

* Kwarteng’s replacement Jeremy Hunt on Monday scrapped “nearly all” of the economic plan and scaled back Truss’s vast energy support scheme, announced in September, in a historic U-turn to try restore investor confidence.

* The BoE interventions have highlighted a growing segment of Britain’s pensions sector – liability-driven investment.

(Compiled by Toby Chopra)

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