Sterling rises to levels last seen before Truss's mini-budget
The pound has risen to its highest level against the US dollar since before Liz Truss and Kwasi Kwarteng’s mini-budget, helped in part by the weakening greenback.
Sterling has jumped by two cents against the US dollar since this morning to a high of $1.1499 on Tuesday afternoon – a notable gain of 2% for the day. That means the pound was worth more than at any point since 15 September.
Sterling rose to its highest level since before Liz Truss and Kwasi Kwarteng's mini-budget. Photograph: Refinitiv
Truss took over as prime minister on 5 September, before the mini-budget on 23 September sparked financial market turmoil that helped to push sterling to an all-time low of $1.0327 against the dollar a few days later.
The US dollar has fallen by about 1% against a trade-weighted basket of currencies, but the pound also gained 0.9% against the euro on Tuesday.
Rishi Sunak has a host of economic issues to address as he takes office as UK prime minister. His job might be made somewhat easier if today’s financial market moves persist.
Sterling hit its highest level since early September – albeit helped by a drop in demand for the dollar, which has strengthened markedly since the summer.
And yields on UK government bonds (known as gilts) dropped – a sign that investors are buying more and that government borrowing costs have dropped. Gilt trading volumes dropped to their lowest level since 23 September, the day of the mini-budget that sparked the market chaos of the last month, according to trading platform MarketAxess.
Both of those developments could help the government: although it should not be overstated at this point, higher sterling would contribute to slowing imported inflation. And cheaper borrowing costs would also benefit the government.
But the moves will also be welcomed by a new prime minister who is trying to move on from the chaos of recent weeks. Plans to cut spending to try to reduce the government deficit will likely prove politically tricky as the UK battles a recession.
Alan Custis, head of UK equities at Lazard Asset Management, said:
The UK economy faces a perfect storm of high inflation, rising interest rates and low economic growth. Liz Truss’s premiership saw borrowing costs rise for the UK government, with a £40bn deficit this year, and so balancing the books is likely to be one of Rishi Sunak’s top priorities.
In other business and economics news today:
Adidas has ended its partnership with Kanye West, saying it “does not tolerate antisemitism” after the rapper was suspended from Instagram and Twitter over offensive posts.
The prices of low-cost ranges of staples such as pasta, tea and chips have surged in the UK in the past year, with cooking oil shooting up 65%, according to figures that highlight how poorer households are being hit disproportionately by the cost of living crisis.
The owner of Premier Inn and restaurant chains including Beefeater has reported a bounceback in profits to above pre-Covid levels but warned of a £60m increase in costs this year fuelled by soaring inflation.
You can continue to follow the Guardian’s live coverage from around the world:
In UK politics, Jeremy Hunt will remain as chancellor as Rishi Sunak reshuffles cabinet
Rishi Sunak has, as expected, confirmed that Jeremy Hunt will remain as chancellor.
Hunt was brought in by the Conservatives to steady the ship after Liz Truss and her chancellor Kwasi Kwarteng sparked market chaos with their mini-budget.
Sterling rises to levels last seen before Truss's mini-budget
The pound has risen to its highest level against the US dollar since before Liz Truss and Kwasi Kwarteng’s mini-budget, helped in part by the weakening greenback.
Sterling has jumped by two cents against the US dollar since this morning to a high of $1.1499 on Tuesday afternoon – a notable gain of 2% for the day. That means the pound was worth more than at any point since 15 September.
Sterling rose to its highest level since before Liz Truss and Kwasi Kwarteng's mini-budget. Photograph: Refinitiv
Truss took over as prime minister on 5 September, before the mini-budget on 23 September sparked financial market turmoil that helped to push sterling to an all-time low of $1.0327 against the dollar a few days later.
The US dollar has fallen by about 1% against a trade-weighted basket of currencies, but the pound also gained 0.9% against the euro on Tuesday.
Coca-Cola raised its full-year guidance on Tuesday. Photograph: Gene J Puskar/AP
Coca-Cola enjoyed higher-than-expected sales in the third quarter as it raised prices around the world and predicted higher revenues for the year.
The US drinks company said it had pushed up revenues by raising prices and pushing buyers to more expensive drinks – defying concerns that consumers will cut back as the global economy slows.
Net revenues grew 10% to $11.1bn (£9.8bn), and it enjoyed 16% organic sales growth as well.
Its sugary drinks rival PepsiCo also raised forecasts for the year this month even as its costs rose. Sugary drinks have been among the last products to be cut back by price-conscious customers.
UK government bond yields drop as Sunak takes office
Investors have bought UK government debt, pushing down bond yields to the level seen before Liz Truss and Kwasi Kwarteng announced their disastrous “mini-budget”.
Prices on UK government debt, known as gilts, plummeted after Truss and Kwarteng announced steep tax cuts for the wealthy without saying how it would affect the government borrowing. Yields rise when prices fall.
The 30-year yield dropped as low as 3.64% on Tuesday, the level on September 22.
During the market chaos that followed the budget on 23 September, the 30-year gilt yield jumped above 4% as investors dumped UK government debt. Then there was a truly historic yield surge above 5% the next week that threatened to cause a spiralling crisis in UK pension funds.
UK 30-year gilt yields dropped on the day that Rishi Sunak took over as prime minister. Photograph: Refinitiv
The Bank of England was forced to intervene to prevent that happening, but it also prompted Conservative party MPs to dispense with Kwarteng as chancellor and then Truss as prime minister in a bid to restore calm. MPs also managed to see off a return by Boris Johnson.
Dean Turner, chief eurozone and UK economist at UBS Global Wealth Management, said:
The market reaction to Johnson’s withdrawal and Sunak’s win has seen gilt yields fall sharply across the curve, while the pound has been steady against the major crosses. Sunak’s victory will not call a halt to the political volatility in the UK, but the temperature should cool significantly.
Ryanair chief executive Michael O'Leary at a news conference in Brussels, Belgium, in September. Photograph: Johanna Geron/Reuters
Ryanair boss Michael O’Leary is never one to be shy with an opinion, and he has views on Rishi Sunak’s ascent to the premiership – or perhaps more accurately on Sunak’s predecessors.
O’Leary told Reuters on the sidelines of an event in Lisbon that he was glad “adults have taken charge again”. He said he hoped Sunak’s first decision would be to rejoin the EU free trade agreement, and said:
They are getting rid of some of the people who were there, from Boris Johnson to Liz Truss, all the Brexiteer wing of the Tory party – they are crazies.
Sterling has gained more ground against the US dollar today: it is now up by 0.45% above $1.13.
The currency did not move much during Sunak’s speech: the messages about cutting the deficit through “difficult decisions” – likely a reference to spending cuts – have already been firmly communicated by chancellor Jeremy Hunt.
The value of sterling rose against the US dollar on Tuesday. Photograph: Refinitiv
Another thing that could help reassure financial markets further would be an improvement in the UK government’s relationship with the EU.
Congratulations to @RishiSunak on your appointment as U.K. Prime Minister.
In these testing times for our continent, we count on a strong relationship with the U.K. to defend our common values, in full respect of our agreements.
British Prime Minister Rishi Sunak makes a statement after taking office outside Number 10 in Downing Street. Photograph: Leon Neal/Getty Images
Rishi Sunak has said the UK government faces “difficult decisions” ahead in his first address as prime minister.
Standing outside 10 Downing Street after meeting the King, Sunak said he would not leave the next generation with debt. As chancellor, Sunak oversaw all-time record deficits in response to the coronavirus pandemic and support the economy through lockdowns. He said:
The government I lead will not leave the next generation, your children and grandchildren, with a debt to settle that we were too weak to pay ourselves.
Chancellor Jeremy Hunt, who is expected although not confirmed to remain in post under Sunak, has already indicated that deep cuts to government spending are likely in a bid to calm the market turmoil caused by Liz Truss and Kwasi Kwarteng’s tax cuts that promised to broaden the UK’s government deficit.
You can follow more details from the speech and the reaction on the politics live blog here:
Adidas ends Kanye West partnership after antisemitic comments
Sarah Butler
Kanye West’s comments about Jews were “unacceptable, hateful and dangerous”, Adidas said in a statement. Photograph: Evan Agostini/Invision/AP
Adidas has ended its partnership with Kanye West in the light of the rapper’s recent comments saying it “does not tolerate antisemitism.”
The German sports brand said the comments and actions from West, who is also known as Ye, had been “ unacceptable, hateful and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness.”
The company said it would take a “short-term” hit of €250m (£219m) hit to its income for this year after taking the decision to end production fo Yeezy branded products and stop all payments to West and his companies stopping the brand’s business with immediate effect.
In 2020, the partnership brought in nearly $1.7bn in revenue, according to Bloomberg, and was set to expire in 2026.
The brand said it was the sole owner of all design rights to existing products as well as previous and new colorways under the Yeezy partnership.
Adidas’s move comes after Balenciaga, Gap and JPMorgan Chase all cut ties with West after repeated anti-Semitic remarks.
The rapper recently claimed that Adidas could not drop him despite his comments insighting calls for a boycott.
Manufacturers' confidence drops the most since pandemic lockdowns - CBI
British manufacturers’ confidence dropped at the fastest pace since the first coronavirus lockdown, according to a poll of big companies by the Confederation of British Industry (CBI).
A balance of 48% of big manufacturers were pessimstic about the economy, compared to only 21% in the last survey in July. The last time optimism fell so low, aside from the depths of pandemic lockdowns, was during the global financial crisis of 2008-09, according to data published on Tuesday that suggested businesses are preparing for a tough time ahead.
Business confidence dropped rapidly during the quarter, according to the CBI. Photograph: Confederation of British Industry
The survey took place after Liz Truss and Kwasi Kwarteng unveiled their “mini-budget” that provoked financial market turmoil and their own removal from 10 Downing Street with unprecedented speed. And there is still the prospect of a long recession looming.
The CBI’s industrial trends data showed that output from UK manufacturers fell in the three months to October – although the same companies do expect output to rise slightly in the next few months.
There were also signs that inflationary pressure may be easing – although it remains elevated in historic terms. And they also expressed persistent concerns about a shortage of workers (although that particular problem may unfortunately disappear in a recession if more people lose their jobs and businesses produce less).
Alpesh Paleja, the CBI’s lead economist, said:
It’s a tough time for manufacturers. Price pressures remain acute, availability of materials is still a big issue – and it is 49 years since manufacturing firms were this worried about being able to find workers with the skills they need. It’s really no surprise that sentiment has deteriorated further.
Action to address the skills challenge is critical for the sector’s future prospects. Urgent reform to add flexibility to the apprenticeship levy would be an important first step for the new prime minister, which can rebuild confidence for manufacturers and restore momentum to their investment and growth ambitions.
