The Conservative party have chosen another leader and Prime Minister following a quick and virtually uncontested leadership bid for Rishi Sunak. The previous Chancellor now faces the unenviable task of trying to fix an economic crisis, one which has been worsened by the actions of his own party in the past six weeks.
Sunak is seen as likely to be a more traditional PM fiscally speaking. His summer leadership campaign was based on being more responsible with the country’s finances, raising taxes and reducing spending to try and plug the burgeoning debt burden. He had warned that the policies of Liz Truss would lead to the kind of turmoil seen in the past few weeks, and this no doubt helped his very quick return from the backbenches.
Markets so far seem happy to see Sunak taking the reins; Sterling enjoyed a slight rise, whilst bonds rallied with yields on UK gilts have fallen back towards the levels seen before the disastrous mini budget just a few weeks ago. The reduction in government borrowing costs will be a relief for Sunak as he now looks to undo the damage done, and push ahead with his own vision for the country.
The Prime Minister has already warned of difficult decisions to be made, and while markets may be happy by his appointment, consumers and businesses will now be cautiously waiting to see what this could mean for them. With the cost-of-living crisis squeezing incomes, any further tax rises will be a tough sell, and a return to austerity could prove his undoing come the next general election.
For precious metal investors then, Sterling will be the key price driver to watch for in the weeks ahead. A further ‘Halloween budget’ was due next week, and is expected to continue, though whether Sunak keeps Jeremy Hunt as Chancellor remains to be seen. If Sunak presents an economic policy that markets accept then the pound could recover further, pushing prices down domestically. If a return to austerity causes a severe recession for the UK however then we could see the pound remain weak and prices high.
