The pound jumps to a 6-week high and UK bond yields fall as new Prime Minister Rishi Sunak pledges to ‘fix mistakes’ by the Truss administration

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UK Conservative Party Leader Rishi Sunak speaks at 10 Downing Street in London after being named Britain's 57th Prime Minister.
Rishi Sunak speaks at 10 Downing Street in London on October 24.

  • The British pound jumped against the dollar on Tuesday as new UK Prime Minister Rishi Sunak vowed to clean up his predecessor’s “mistakes.” 
  • Former Prime Minister Liz Truss resigned last week after her £43 billion growth plan sent UK borrowing costs surging. 
  • The pound brushed up against $1.15 for the first time since mid-September. 

The British pound surged against the dollar on Tuesday as Britain’s new Prime Minister Rishi Sunak said he will correct his predecessor’s policy errors that rocked financial markets. 

Pound sterling rose as much as 1.9% to $1.1498, its highest since September 15, then slightly pared the advance to 1.7%. 

UK gilt yields extended their decline as Sunak spoke as Britain’s new and 57th prime minister for the first time. He moved into the role following Liz Truss’ resignation last week after her administration’s £43 billion mini-budget spurred a surge in UK borrowing costs. 

“She was not wrong to want to improve growth in this country. It is a noble aim,” Sunak said in a speech in front of 10 Downing Street. “But some mistakes were made — not borne of ill will or bad intentions. Quite the opposite, in fact, but mistakes nonetheless.” 

Sunak, a hedge fund co-founder and former analyst at Goldman Sachs, added “And I have been elected as leader of my party and your Prime Minister, in part to fix them. And that work begins immediately.” 

The UK’s 10-year gilt yield dropped 11 basis points on Tuesday to 3.63% as prices rose, and the 30-year gilt yield fell 8 basis points to 3.67%. Yields have been declining in recent sessions, after the 30-year yield charged up beyond 5.1% during Truss’ short term in office, hitting the highest level in 20 years. 

Sunak also on Tuesday said he will keep Jeremy Hunt as the country’s top finance official. Hunt was first named Chancellor of the Exchequer by Truss after former Chancellor Kwasi Kwarteng was ousted from her government. 

The spending and tax-cut plan outlined by Kwarteng sent bond yields surging, prompting the Bank of England to launch emergency long-bond purchases to bring down yield levels. The central bank said UK pension funds were hours away from collapsing in the wake of the now-abandoned growth plan.

“With this out of the way, we think markets will now focus on the UK’s deteriorating growth outlook, as evident from the extremely weak UK PMI numbers, and the likelihood of more spending cuts which will further weigh on growth, a key reason why we remain bearish on [pound sterling],” Morgan Stanley strategists said in a note. 

Sunak said the UK is facing “a profound economic crisis,” following the height of COVID infections and from the ongoing war by Russia against Ukraine that has sprung energy prices sharply higher.

“I will place economic stability and confidence at the heart of this government’s agenda. This will mean difficult decisions to come,” he said. 

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