Recent changes in the UK’s top job have had a positive effect on pound sterling and long-term sovereign bond yields. But the financial market reaction has been muted compared with the financial turmoil blamed on former prime minister Liz Truss and ex-chancellor Kwasi Kwarteng in recent weeks.
After the mini-budget on September 23, the markets reacted to a bad policy: Truss’s strategy to undertake massive tax cuts without providing much certainty on how this would be funded. Its reversal brought bond yields down from recent highs (essentially reducing the cost of government borrowing) and saw the pound appreciate. But overall, the market losses seen following the mini-budget have barely been recovered.
