UK Political Stability Won’t Stop Winter From Biting

A sense of normality is creeping back into UK politics after Rishi Sunak’s nomination by the Conservative Party as the next prime minister. But the enormity of the financial task ahead has not diminished. What the government does next on the fiscal front will determine how much higher the Bank of England feels it has to push interest rates — and how much economic pain businesses and consumers face this coming winter.

Sunak’s appointment has been welcomed by financial markets as promising political stability, after Liz Truss’s disastrous dash for growth via unfunded tax cuts trashed the pound and sent government bond yields soaring in the past month. Sterling is about 10% stronger versus the dollar than the record low reached on Sept. 26, while gilt yields have calmed down from the elevated levels that sent pension funds into a tizzy.