Currency markets will breathe a sigh of relief at the appointment of Rishi Sunak as Britain’s next prime minister, but it only signals one less nail in the coffin for the UK economy, a currency expert has said. On Mr Sunak’s win, Patrick Reid, trading mentor and co-founder of FX consultancy The Adamis Principle, told Express.co.uk: “Will sterling rally? Not necessarily. It’s more of a sigh of relief, one less nail in the coffin. The structural issues [in the UK’s economy] have not changed. The markets, whilst they are breathing a sigh of relief, they want more reassurance and a plan.”
He continued: “Yes, short term, sterling is probably not going to go lower, but what next? No one knows. How convincing will he be and what’s his plan? How is he going to make changes after all credibility in the UK Government has basically been battered?”
He cautioned Mr Sunak, who had warned Liz Truss of the impact of making tax cuts during a period of high inflation, against an “I told you so” approach as he steps into office.
Mr Reid said: “My inkling is he won’t say ‘I told you so’, but look forward. He needs to unite the party and start a fresh sheet. If he does that and cxomes up with pragmatic action points to get the economy and credibility back on track, there will be a lift on sterling and risk.”
The currency expert identified low earnings due to inflation, lacklustre GDP growth and worsening sentiment as the main structural challenges of the economy. The Bank of England is also forecasting four to five quarters of negative growth.
Mr Reid explained what the UK has seen since Ms Truss’s mini budget is markets getting their own back and punishing the Government for its complete disregard.
He added: “The fresh sheet is someone who recognises the markets. It would be a very good start with a large dose of honesty and practical steps, welcoming the OBR report and coming up with a fiscal plan that works and makes sense and manages voters’ expectations.”
Sterling strengthened on Monday, finding short term relief from the likelihood Mr Sunak would become Britain’s next prime minister after Boris Johnson quit the race.
The pound was an outlier among major currencies as most others weakened against the US dollar. It rose as far as $1.1402 in Asian trading before paring gains to hold just inside positive territory at $1.1323.
Sterling’s moves against the euro were sharper with the common currency falling 0.5 percent to 86.84 pence.
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In a statement posted on Twitter, Ms Mordaunt said: “This decision is an historic one and shows, once again, the diversity and talent of our party.
“Rishi has my full support. I am proud of the campaign we ran and grateful to all those, across all sides of our party, who gave me their backing.
“We all owe it to the country, to each other and to Rishi to unite and work together for the good of the nation. There is much work to be done.”