Economic data shows UK faltering as Sunak set for No 10 – as it happened

Rishi Sunak is seen leaving his campaign office in London as the nominations deadline for the Tory leadership post looms. Photograph: Belinda Jiao/PA

2.52pm BST

Closing summary

UK markets have largely welcomes Rishi Sunak as the incoming prime minister, seeing him as a steady pair of hands to deal with an economy headed towards recession.

UK bond yields fell this morning on the prospect of Sunak winning the Tory leadership contest, signalling growing confidence in the UK’s long-term economic outlook and the country’s ability to pay its debts.

Meanwhile, the FTSE 100 was trading higher by nearly 0.9% at 7028 points.

But Sunak will take over at a difficult economic juncture.

PMI data showed UK business activity contracted for a third month in a row in October, and fell to its lowest level since January 2021, signalling that the UK could be on course for a deep recession.

Meanwhile data from retail experts Springboard showed consumer demand weakening further, with shopping footfall dropping another 2.3% last week.

Businesses are now crying out for help. Whether Sunak is able to support them ahead of what is likely to be a tough winter, remains to be seen.

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2.41pm BST

The incoming PM is set to tighten government purse strings, according to Capital Economics.

Senior UK economist Ruth Gregory says:

Sunak’s chosen Chancellor (Jeremy Hunt is expected to remain in post) will still need to set out a new set of fiscal rules and achievable policies to fill the hole in the public finances.

In a note published last week, we estimated that even after Chancellor, Jeremy Hunt, wiped from history most of Truss/Kwarteng’s tax policies, a fiscal hole of around £34bn remained.

The latest market moves have reduced some of the increase in debt interest payments since the mini-budget on 23^rd September and may mean that the remaining fiscal gap to plug is now closer to £30bn.

We will know more as the dust settles and Sunak’s fiscal strategy is announced.

Overall, the news that Rishi Sunak will be the next PM means that the big downside risks to the economy posed by a prolonged period of political instability and a significant fiscal tightening have receded. But with a fiscal tightening still on its way, the risk is that the recession will ultimately be deeper or longer than we currently expect.