Thu, 20 October 2022 at 9:18 am
Truss confirmed she’ll be stepping down from the top job after just 44 days, announcing that she will stay on as PM and that there will be a leadership election to replace her, which will “be delivered within the next week”.
Speaking from a lectern in Downing Street, Truss said she told the King she was quitting as the leader of the Conservatives as she can no longer deliver the mandate which Tory members gave her just over six weeks ago.
Earlier this week, chancellor Jeremy Hunt reversed almost all of the tax cuts announced in the mini-budget, in a bid to calm the meltdown in bond markets that forced an intervention from the Bank of England.
The pound rose 0.3% to $1.13 against the dollar after Truss’s resignation as traders’ sentiment was buoyed by her departure after she oversaw chaos in financial markets.
he Bank of England tempered its interest rate hiking rhetoric.
Ben Broadbent, the BoE’s deputy governor, said it’s not clear that UK rates need to rise as much as markets expect and warned about a hit to the economy if investors’ bets come to pass. If interest rates follow the current path, it could cause a 5% hit to gross domestic product, he said.
He said that while the “justification for tighter policy is clear” in the face of soaring inflation, demand will slow to some extent anyway due to higher prices in a speech at the Imperial College London on Thursday.
“Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen,” Broadbent added.
Analyst and traders had priced in a full percentage point of rate increase at the next BoE meeting in November, but started to back away from those bets by around 15 basis points after the speech.
Markets are now betting that interest rates will peak at 5.2% by June, down from 5.3% before Broadbent’s speech, and up from the current 2.25% Bank Rate. His comments come as UK inflation returned to double-digits in September.
“Markets paused for breath after a recent relief rally, indicating that the raft of concerns which are currently plaguing investors remain constantly near the surface,” said Richard Hunter, head of markets at Interactive Investor. “The hot UK inflation print was a stark reminder, if it were needed, that interest rate hikes remain on the cards globally.”
“In turn, the possibility of a global recession increases with additional pressure being felt by individuals and businesses alike,” he added.
Across the pond, US indices closed lower as traders weighed a batch of company earnings against fears that continued interest rate increases will cause a recession.
“Worries are still lingering that a strong-arm Fed could push the US economy into a sharp downturn which will have repercussions around the world,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said. “That sentiment appears to be weighing on markets.”
Stock markets in Asia tracked the downturn, finishing in the red overnight as the yen (JPY=X) slumped to its lowest level against the dollar since 1990.
The falling Japanese currency has tumbled to 150 per dollar for the first time since 1990, driven down by the contrast between Japanese monetary easing and aggressive US interest rate hikes.
The currency has plunged from February levels of around 149.80 to the dollar as the Bank of Japan stuck to its long-standing ultra-loose policies, which are designed to encourage sustainable growth.
The central bank of the world’s third-largest economy intervened in the market back in September to support the declining yen.
“After another weak session on Wall Street last night, the negative tone spread to Asia on Thursday with Hong Kong’s Hang Seng index down 1.3% amid concerns about a sharp slowdown in China’s economic growth,” Russ Mould, investment director at AJ Bell said.