Can Rishi calm the markets?

On this morning’s Coffee House Shots, Fraser Nelson returned to the phrase he coined last Wednesday: ‘the muppet premium'. This premium, he said, summed up the additional borrowing costs markets were now demanding from the British government, having lost credibility for responsible and sustainable financing. Are there early signs that soon-to-be prime minister Rishi Sunak is already tackling this premium?

While there hasn’t been significant movement in sterling today, the gilt markets already appear to be responding to the imminent change in leadership. 10-year gilt yields dropped under 4 per cent when the market opened at 8am, settling at around 3.8 per cent. Meanwhile, 30-year gilt yields fell over the course of the day back down to levels last seen before Liz Truss and Kwasi Kwarteng’s explosive mini-Budget.

So it seems the cost of borrowing is already starting to drop, simply with the news that Sunak will be in No. 10. But there is no guarantee this will last. Investors still want to know what the government’s plans are to get the public finances back on track. 

The irony of Sunak, however, is that his background in finance and serious attitude towards the public finances when he was chancellor may grant him slightly more leeway than others would have been allowed – both in terms of the timeline for new announcements and just how deep those spending cuts might have to be. It’s a balance Sunak is under heavy pressure to get right.