As financial markets reacted to the appointment of Rishi Sunak as new prime minister, the value of the pound recovered to its highest level since before last month’s crash, lowering borrowing costs for the British government.
The pound rose 1.9% against the US dollar to 1.149 after the new prime minister began to confirm appointments to the new cabinet.
The rally made the pound more valuable than at any point since Sept 15, though it slipped back to 1.146 in afternoon trading in London.
Meanwhile, the gilt yield, which determines the interest the UK government pays on some loans, has also fallen.
Yields on 30-year gold coins were down 0.1 percentage points to 3.65%, close to levels seen before the shock caused by former Prime Minister Kwasi Kwarten’s ‘mini-budget’.
Failure of ‘trasonomics’
Snack’s predecessor, Liz Truss, wanted Britain to become a “low-tax, high-growth economy that takes advantage of the freedoms of Brexit.”
The so-called ‘mini-budget’, presented on 23 September, is a massive tax cut worth £45 billion ($50 billion) aimed at revitalizing Truss’ new economic program called ‘Trussonomics’. I was there.
However, her plan to finance tax cuts with government borrowing instead of spending cuts has led to concerns about unsustainable levels of government debt, and it has failed miserably.
The ensuing financial market turmoil saw the pound depreciate to a record low of 1.032 against the dollar, increasing borrowing costs for both the government and UK households.
The Bank of England responded with an emergency bond-buying package, alleviating concerns about rising government borrowing costs.
Truss sacked Quarten and was forced to perform a series of humiliating U-turns. She appointed veteran MP Jeremy Hunt as the new prime minister of the Treasury Department, who has since nearly overturned her economic plans.
Fix the “mistake”
In his first speech as Prime Minister, Sunak vowed to correct the “mistakes” of his predecessor and to rebuild economic stability and trust.
He said the UK was facing a “serious economic crisis” caused by the COVID-19 pandemic and the aftermath of Russia’s invasion of Ukraine.
Sunak suggested that his government would make “difficult decisions” to reduce government debt.
“I will put economic stability and confidence at the center of this government’s agenda, which means difficult decisions to make,” he said.
“The government I lead will not leave the next generation – your children and grandchildren – with debts that we are too weak to pay ourselves,” he added.
Snack pledged that his government would have “integrity, professionalism and accountability at all levels” and vowed to earn the trust of the British public.
PA Media contributed to this report.