After Liz Truss announced her resignation as prime minister on Thursday, the main equity indexes in the UK reached session highs before giving up gains. Her economic blueprint, which shocked the financial markets, was the cause of her downfall.
The blue-chip FTSE 100 rose as much as 0.4% in response to the news, but it ultimately fell by 0.1% as a rise in the pound harmed companies that make money in dollars, such AstraZeneca and Diageo.
The battered FTSE 250 index, which is more vulnerable to domestic economic growth, increased by 0.1% after initially rising as high as 1%.
This week, when her policy package provoked a bond market meltdown and a decline in her and her Conservative Party's support ratings, Truss was forced to scrap practically all of it.
A leadership election will be completed within the next week to replace Truss, who is the shortest-serving prime minister in British history. read more
“The pound is trading higher, attempting to climb back up its 2-week highs logged earlier this week as investors cheer Truss’ departure and the potential for a more economically savvy, market friendly leader,” said Victoria Scholar, head of investment at Interactive Investor.
“Sterling’s strength is weighing on the FTSE 100 with its major UK exporter stocks like Diageo and CocaCola languishing near the bottom of the UK index.”
The Truss government’s “mini-budget” unveiled last month included large tax cut plans that raised concerns about how it might be funded and sent UK borrowing costs sharply higher, forcing the Bank of England to intervene.
Rishi Sunak and Penny Mordaunt, two contenders in Britain’s previous leadership contest this year, are believed to be in the running to become the nation’s next prime minister, Sky News reported. read more
Investors reined in bets of a full percentage-point interest rate increase by the Bank of England next month after a top official said it remained to be seen whether rates rise as sharply as the market has been expecting. read more
Traders are now placing 90% odds of a 75 bps rate hike.
“The Bank of England has clearly won the tug of war with her now of out office. It now gives the BoE the much of a free reign right now to focus on inflation,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.