Pounds rises after new prime minister Rishi Sunak enters No 10

Financial markets reacted positively by the entrance of Rishi Sunak into No 10 Downing Street.

Sterling was around 0.4 cents more expensive, trading up around 0.3 per cent against the dollar to a little over 1.13.

The yield on Government bonds dropped slightly on the day, reaching 3.72 per cent – remaining below the level it was at before the mini budget was announced a little over a month ago.

The FTSE 100 was largely unmoved. It had already been trading down before Mr Sunak took the top job and was down around 0.5 per cent to 6,977 points shortly after midday.

Liz Truss officially became the shortest-serving prime minister in history after King Charles III accepted her resignation making way for new Mr Sunak to take power.

The King was “graciously pleased to accept” her resignation after just 49 days in office when they met on Tuesday morning, Buckingham Palace said.

In his first address to the nation as prime minister, Mr Sunak said the UK was in a “profound economic crisis.”

The markets, which saw devastating mayhem during Ms Truss’ tenure, responded positively as power was passed on to Mr Sunak.

The pound inched higher while UK gilts extended gains as investors wait for more details on economic and fiscal policy from new prime minister Rishi Sunak.

The pound was up 0.5 per cent against the dollar to $1.1300 as Mr Sunak was made prime minister, holding most of its gains made since late last week when Liz Truss announced her resignation. Against the Euro it was up 0.3 per cent at 87.30p.

Long-dated gilt yields, which were at the centre of the firestorm that scorched markets after the mini-budget, have almost returned to where they were before the release of the mini-budget on 23 September, reflecting a greater degree of confidence among investors.

Investors are betting that former chancellor Mr Sunak will restore credibility following Ms Truss’s disastrous time in office. Mr Sunak is expected to keep Jeremy Hunt as chancellor, giving further stability, as he names the rest of his cabinet.

UK mortgage rates remain close to highs last seen during the 2008 financial crisis, however, as the country receives its third prime minister in seven weeks.

The average two-year fixed-rate loan dipped slightly to 6.54pc this morning after last week breaching 6.65 per cent for the first time since August 2008.

The average five-year fixed-rate deal also fell to 6.4 per cent but remains at its highest since November 2008, according to data from Moneyfacts.

The sharp rise in mortgage costs will be one of the key issues to address for Rishi Sunak as he takes over from Liz Truss. The jump is starting to take its toll on house prices and is piling more pressure on strained household budgets.

“The fall in UK gilt yields does suggest one thing and that is we will probably see a budget delivered next week and all the indications are it will be delivered by Jeremy Hunt, the existing chancellor of the Exchequer,” CMC Markets chief strategist Michael Hewson said.

With gilt yields falling, the pound is likely to struggle for gains, “largely on the basis that the economic outlook for the UK economy remains grim,” he said.

Following Mr Sunak’s speech, Britain’s stock market still struggled with the FTSE 100 trading near its lowest levels of the day.

This comes as the Bank of England‘s chief economist has said the country’s economy might have benefited if “other institutions” had respected the UK’s institutional framework in recent weeks.

Huw Pill made the veiled swipe at the government as he also lauded cooperation between the central bank and the Office for National Statistics (ONS) at a speech in London.

It came days after deputy governor of the Bank, Sir Jon Cunliffe told MPs that the government did not fully brief the Bank on its mini-Budget and sweeping tax-cutting plans before it was unveiled.

Subsequent concerns over large borrowing required for the mini-budget accelerated a sell-off in the bond market and a slump in the pound to a record low against the dollar.

The financial turmoil led to the appointment as chancellor of Jeremy Hunt, who has outlined plans to reverse many policy decisions from the mini-budget.

Mr Pill indicated on Tuesday that the government and other institutions should take example from the Bank‘s relationship with the ONS.

“That is a model for how UK macro-policymakers should respect the institutional framework when they interact with one another,” he said.

“In my view, we might have benefited in recent weeks if the interactions amongst other institutions had followed that pattern.”

The chief economist is one of the nine-strong Monetary Policy Committee at the Bank who will meet next week to decide the latest decision of interest rates.