Markets breath sigh of relief as new PM unveiled

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25th October 2022

Bite-sized business news from the UK and beyond

Good morning Yesterday Royal Mail issued an urgent warning that stamps without barcodes will be invalid from the end of January. That means the public have 100 days left to rummage through wallets and drawers to track down stamps to use before the deadline, otherwise they will have to swap them for new barcoded stamps in order to send a letter or parcel.

Today's stories

Markets breath sigh of relief as new PM unveiled
Sports Direct owner buys up stake in Asos

ECONOMY
Markets breath sigh of relief as new PM unveiled

What happened?
Yesterday Rishi Sunak was named the leader of the Conservative party and therefore the UK’s next prime minister. The FTSE 100 climbed up, the pound steadied and interest on government bonds fell amid hopes for renewed financial discipline after a tumultuous month.

September’s loser has become October’s winner
Sunak was beaten by Liz Truss last month in the race to replace Boris Johnson as PM. Ever since he’s kept a low profile as Truss’ disastrous mini budget sent financial markets into a tailspin and damaged the UK’s economic credibility – all of which he predicted would be consequences of her plans for unfunded tax cuts.

After Truss’ resignation last Thursday Sunak along with Penny Mordaunt and Boris Johnson emerged as the main contenders to succeed. However Mordaunt and Johnson dropped out leaving Sunak as the winner.

Markets have reacted well and are hopeful that the new PM will herald a period of stability
The interest on government borrowing, aka bond yields, spiked in the aftermath of last month’s mini budget, reaching 5.17% for 30-year bonds, yesterday this returned to the pre-Truss level of 3.8%. The pound, that reached a record low last month of $1.03, stabilised at $1.14 and the FTSE 100 index rose 0.6% - all signs that investors are feeling better about the UK’s economic prospects.

With Sunak’s background in finance, Sunak is a more market-friendly candidate compared to his predecessor and is likely to focus on fiscal responsibility he showed during his time as chancellor. It’s thought that Jeremy Hunt will remain chancellor, an outcome that investors have welcomed since he has reversed most of the tax cuts put in place by Truss.

In his words the UK faces a ‘profound economic crisis’
The new PM has an unenviable in-tray: 40-year high inflation, rising interest rates and a £40bn blackhole in the government finances that will call for higher taxes and/or spending cuts. Not forgetting ongoing issues with Brexit, record NHS waiting lists and a war in Europe.

Survey data released yesterday showed that economic activity in the UK private sector contracted at the fastest in 21 months in October, suggesting the country is already in recession.

Sunak may have a reputation for competence that is already reassuring the markets. But he’ll need a fair amount of luck, too as the country enters the biggest cost of living squeeze in a generation.

Other stories to keep you in the loop

UK banks pull half of first-time buyer friendly mortgages after mini-budget
UK doomed without Brexit rethink, warns City boss
Millions invited to take part in UK scheme to diagnose diseases earlier
Philips to cut 4,000 jobs after millions of devices recalled
Chinese stock markets tumble as Xi’s tightening grip alarms investors

RETAIL
Sports Direct owner buys up stake in Asos

What happened?
Yesterday Frasers Group announced it now owns 5.1% of online fashion retailer Asos.

Frasers has a history of buying other British retailers
Frasers Group, which is owned by billionaire Mike Ashley, began with the high street chain Sports Direct in 1982 and in recent years has been on a shopping spree snapping up struggling retail brands including House of Frasers, Missguided and Jack Wills.

Like many fashion names Asos is dealing with tougher trading conditions as the cost of staff and stock rise and customers cut back on clothes spending amid a cost of living crisis. This year the share price has plunged 80% as the company repeatedly downgraded its revenue and profit expectations. Last week it unveiled a cost-cutting plan alongside a loss of £32m in the past year.

Frasers is now the fourth largest shareholder in Asos and it’s expected that the companies could build a partnership that could involve selling each other’s brands or sharing distribution.

The company has international expansion plans
Yesterday Frasers also announced it had bought 4.5% of German luxury brand Hugo Boss. It’s also in the process of buying the Australian online business My Sale. The group said it "has extensive ambitions to grow the business inside and outside of the UK and is constantly exploring the potential for further expansion".

Stat of the day

Rishi Sunak will be the youngest prime minister since 1812. At 42, he is a year younger than both David Cameron and Tony Blair when they entered Downing Street

Interesting links from around the web

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Markets breath sigh of relief as new PM unveiled

Older messages

Economic outlook gets gloomier

Market reacts to Truss departure

Inflation hits double digits again

Fallout from government U-turns continue

Mini budget undone as gov U-turns mount

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