UK Gilts Care More About Supply Than Who’s Prime Minister
British government turmoil matters less to sterling assets than how the economy is run.
Liz Truss, UK prime minister, delivers her resignation statement outside 10 Downing Street.
Source: Bloomberg/BloombergIn these febrile times, the resignation of Prime Minister Liz Truss is less important for UK financial markets than who occupies the role of chancellor of the exchequer. For sterling assets, what matters is the economic plans emanating from No. 11 Downing Street, not who gets to choose the wallpaper in the house next door.
UK government bond yields have recovered from the crisis levels reached in recent weeks. Jeremy Hunt’s appointment as chancellor and his immediate scrapping of Truss’s unfunded tax cuts steadied the ship. Whoever replaces Truss will be acutely aware of the need to keep the markets friendly. Hunt may well stay on, having said he won’t stand for election to the top job; but even if he is replaced, frugal economics are likely to remain the watchword. Any return to a dash for growth by an incoming PM — and Boris Johnson seems to fancy his chances of a second term of office — will surely only result in more spectacular financial fireworks.