Impact of PM's resignation on the market

Hopefully this latest (Very expected) move by the Tory's will mean more economic stability in the long term, but it may make lenders temporarily nervous until the replacement if officially announced. As previously stated, most of the current issues are related to economic uncertainty, and not knowing who is leading the country will probably add to that. I still believe we need a general election at this point.

This could be a huge sigh of relief for mortgage borrowers, trussanomics has caused mayhem with interest rates, it has been very negative for those securing a new mortgage in the last few weeks.

Although arguably the most chaotic reign in UK politics is now over, much doubt still looms over the capabilities of the Tory party to deliver a credible economic solution. A lot of the early reaction from the departure of Liz Truss is a good indication of the UK economy but it is just that, an indication. Much ambiguity surrounding the political and economic climate remains and will remain until a new Prime Minister and cabinet have been appointed. Reaction from various financial markets around the economy has been swift. Within minutes of Truss’s resignation, the pound climbed from $1.12 to $1.13 before settling back at $1.126, 30-year gilts have further fallen from by 0.05% and UK mid-caps jumped as much as 1%. The continued reduction in gilt yields will come as a welcome sight to the BoE as they continue to wage a ‘war on two fronts’ by battling the conflicting objectives of controlling inflation, while preventing a collapse in the pensions markets by stabilising the cost of government debt. Rate futures markets have shown a decrease in the likelihood of the BoE raising interest rates by 1% at the next Monetary Policy Committee (MPC) meeting. Factors such as an impending 100 basis points increase in base rate have caused ‘knee-jerk’ reactions across markets. This may somewhat calm the waters and we can only hope that we won’t see any more disproportionate rate hikes in the mortgage market. The initial increase in Sterling should be taken with a pinch of salt as we see the early rise begin to fade. It is, however, a useful indication of the market’s opinion on the resignation of the Prime Minister. Much of the recent turmoil across the UK financial markets has been fuelled by uncertainty. Early indicators would suggest a shift in the right direction, although there is a long way to go to restore confidence in the UK’s government. Liz Truss leaves behind a country in need of direction and with many calling for a general election, the question that now hangs over the UK political and economic climate is who is best to take the country forward.