British markets are now seen to be preparing for more uncertainty following political uncertainty on Wednesday, with investors awaiting follow -up action from the new finance minister and whether Prime Minister Boris Johnson can defend his position.
The pound traded near a two -year low against the US dollar with a 0.45% decline to the 1.1894 trading level. However, the stock market remained strong.
Some analysts attributed the gains to hopes for more public spending, and the rise in share prices was in line with gains across broader markets and followed a big fall on Tuesday when Rishi Sunak resigned as finance minister and Sajid Javid resigned as health secretary.
Analysts are of the opinion that the market will struggle until they can reason on the actions of Nadhim Zahawi, the new finance minister, and whether Johnson remains steadfast in this political situation.
UK stocks, which fell sharply on Tuesday along with broader market selling then surged (recovered) on Wednesday. “The financial market will evaluate the development here in terms of its impact on economic policy. The new chancellor is expected to be more inclined to increase public spending than his predecessor recently, ”said Paul O’Connor, head of the UK-based Multi Asset Team at Janus Henderson.
On the other hand, Bank of England chief economist Huw Pill warned on Wednesday that the British economy would slow over the next 12 months and stressed the rise in interest rates.
With inflation heading towards double digits and growth in the economy fading rapidly, Pill said the BoE was looking for a way out between these two big challenges in hopes of returning consumer price growth to the 2%target.
International institutions, such as the International Monetary Fund and the OECD, said Britain was more vulnerable to recession and persistently high inflation than other Western countries struggling with global energy and commodity market shocks.
The BoE has raised interest rates five times since December, raising rates to 1.25% from 0.1%. A faster tightening is expected despite slowing growth as the highest inflation in 40 years erodes household purchasing power.
