The UK’s new Prime Minister Rishi Sunak will enjoy a honeymoon period and a relief rally in the markets, but it won’t last very long, warns the deVere Group CEO Nigel Green.
The warning follows the naming of Sunak as the replacement of Liz Truss, who resigned after just 45 days in office last week with her economic agenda junked by her new Chancellor, Jeremy Hunt.
Nigel notes: “The pound will edge higher and gilt yields lower in response to Rishi Sunak’s ‘coronation’ by Conservative colleagues to be the party leader and PM.
He continues: “Sunak is seen as having a safer pair of hands than his predecessor, with his constant warnings about the disastrous consequences of Liz Truss’s economic policies being proven correct.
“However, we expect the current relief rally of the markets will be over sooner rather than later because the UK still faces a storm of economic problems.
“There’s the brewing deep and painful recession, soaring energy prices, inflation running at more than 10%, labor gaps, ongoing supply chain dramas, and the Bank of England intent on hiking interest rates.”
He goes on to say: “Against this backdrop – and because many in his own party and in the country blame him for Boris Johnson’s departure which led to Truss’s premiership – he might find it hard to find unity and push ahead with the fiscally cautious agenda he seeks and that markets crave.
“In addition, the massive loss of credibility suffered by the UK cannot be regained all that rapidly. U-turns and abandoning landmark economic policy after economic policy does not inspire investor confidence and trust. UK financial assets currently remain hugely unattractive for investors.”
Last week, as Liz Truss was resigning, the deVere CEO told the media that to investors, “the UK looks ungovernable, and its economy resembles that of an emerging market, not a G7 nation.”
Following Sunak taking the keys to Number 10, Nigel concludes that “the markets will initially give him the benefit of the doubt. The really interesting question will be, for how long?”
