Pound gains as Rishi Sunak leads race to become PM
The pound has gained on the dollar as Boris Johnson dropped out of the Tory leadership race, leaving Rishi Sunak as the favorite to become prime minister.
On Monday morning, sterling stood around 0.4% higher at $1.134.
Meanwhile, government borrowing costs dropped as the markets opened after the weekend.
Former chancellor Sunak is now the only candidate backed by more than 100 Tory MPs, the level required to take part in the ballot of party members.
Johnson, who claimed he had the support of 102 MPs although only 57 MPs did so publicly, dropped out after saying he would be unable to unite his party.
Commons Leader Penny Mordaunt remains in the race but is some way off from securing 100 backers. The deadline is 14:00 on Monday.
Last month, the sterling plunged to a record low against the dollar and government borrowing costs rose sharply in the aftermath of outgoing Prime Minister Liz Truss’s mini-budget.
Investors were spooked after then-Chancellor Kwasi Kwarteng promised major tax cuts without saying how they would be paid for – something Sunak warned about during this summer’s Tory leadership contest.
Last week, new Chancellor Jeremy Hunt withdrew almost all of Truss’s tax cuts in a bid to stabilize the financial markets but they have remained jittery.
On Friday, the pound fell as low as $1.11 and government borrowing costs rose amid continued political uncertainty and fresh warnings about the UK economy.
On Monday, government borrowing costs fell back following Johnson’s decision.
The interest rate – or yield – on bonds due to be repaid in 30 years’ time dropped to 3.9%, making government borrowing cheaper. They had hit 5.17% on 28 September after the mini-budget and a subsequent pledge by Kwarteng to announce more tax cuts.
Hunt – who is backing Sunak – is scheduled to set out the government’s economic plan for taxes and spending on 31 October.
He has warned the government is facing “decisions of eye-watering difficulty”.
But on Monday, financier and long-term Tory supporter Guy Hands said the Conservative Party was not fit to run the country and risked having to ask the International Monetary fund for a bailout.
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