Following another week of market turmoil, the UK faces its fourth Chancellor in just four months, with long-time Conservative Jeremy Hunt taking the reins following the sacking of Kwasi Kwarteng. In another humiliating U-turn for new PM Liz Truss, her entire economic platform of growth has been dismantled by Jeremy Hunt and leaves her premiership looking shaky.

Jeremy Hunt

New Chancellor of the Exchequer Jeremy Hunt

Markets however seem happier to see fiscal responsibility and austerity back on the table, with GBP, stock markets and bonds enjoying a bounce back so far today. The new Chancellor announced a reversal on almost all the measures announced in the ‘mini-budget’ just a few weeks ago, instead opting for higher taxes and lower growth. The current energy price cap is now also expected to end in April, with a more refined and targeted system to be announced for after that date.

The new economic direction is in stark contrast to the policies Truss campaigned on and initially introduced, but had caused significant economic damage in just a short space of time. Sterling dropped to an all-time low, mortgage rates have increased, while the Bank of England was forced to intervene in the bond market at risk of pension funds collapsing.

Despite today’s reversal however it is unclear how much of a recovery should be expected. Mortgage rates have risen significantly in the past few weeks, and seem unlikely to come back down in the short-term, almost certainly bringing house prices down in the coming months. While the pound has recovered somewhat from the recent record low, currently at $1.12, it is still a far cry from the $1.37 at the start of the year, and remains a painful indictment of the outlook for the UK economy in the year ahead.

While markets may be happier with more stability and fiscal responsibility for now, it will mean a sharper recession for the UK. With less money to spend, prices still rising, and energy bill support now due to end in April, consumers will continue cutting back, extending how long and how deep any recession will last.

Also clouding matters of course is that the situation is currently far from certain. Having only become PM just over a month ago, Liz Truss is now facing calls to resign or be removed. How long the PM can hold on is unclear, and the actions of the Conservative Party in recent years shows how willing they are to remove an unpopular PM. What that could mean for the Conservative Party and the government at large is unknown, and this uncertainty will not be helping to rebuild confidence in the UK economy for investors.

The slight recovery in the pound has kept precious metal prices largely flat here in the UK after last week’s drop due to US inflation figures. UK investors then will be watching closely for any further indications of political or economic chaos, and what impact it may have on Sterling.