We had a very eventful end to last week with Chancellor Kwasi Kwarteng sacked and replaced by Jeremy Hunt. This came off the back of the BoE refusing to intervene further in the markets and halt it’s GILT purchases. PM Liz Truss held a press conference to calm the markets where it was revealed that they would be going back to Rishi Sunak’s plan of keeping the corporation tax rise for 2023, but unfortunately, after only making that announcement and answering 3 questions, she had not done much to calm the market, and Sterling sold off into the weekend.
There has been much talk since of the Prime Minister’s position and if she will be able to keep hold of her job, which is something to keep an eye on over the next week, apparently many letters of no confidence have already gone in over the weekend (Not a great start)
Currently, it seems this U-Turn is not enough to keep the markets happy and it suggests more was expected than just the corporation tax news- it will be interesting to see how the new Chancellor handles these concerns.
Consequently, it seems that the Bank of England have already begun setting the stage for a big interest rate hike on the 3rd of November, current forecasts are between 75-125bps after Governor Bailey said that the BoE will need “A stronger response than we perhaps thought in August”- it seems the Central Bank are late to the party with this thought- but either way it looks like rates will be higher for longer, and with that, Sterling will be weaker.