Optimism In British Markets Short-Lived After Boris Johnson Drops Out Of PM Race
October 24, 2022
Optimism on London's markets was short-lived on Monday after Boris Johnson counted himself out of the race to become Britain’s next prime minister.
The FTSE started the day stronger, with a 0.5 per cent rise. That pushed it above the 7,000-point mark for the first time in a week, but it later lost many of these gains.
The good fortunes turned around less than an hour after opening, pushing as low as 6,915, down 0.8 per cent compared to Friday's close. It reached 6,985 around noon.
The markets were also pricing in lower Bank of England base rates of less than 5 per cent, substantially lower than the peak of more than 6 per cent since the government's September mini-budget.
And the pound initially built on a multi-day rise, climbing from its low of below $1.11 at about midday on Friday to reach close to $1.14 as stock markets opened after the weekend.
However, the gains were later pared back, reaching as low as $1.129 a little after noon as the 2pm deadline loomed.
The story was similar for the gilt market.
The interest rate on a 30-year UK treasury gilt — which determines how much the government pays on its debt — fell by nearly 0.2 percentage points to about 3.9 per cent, but later rose again to 4 per cent.
The movements follow the decision of Mr Johnson not to seek his party's nomination to take the job again, even after a weekend of hitting the phones to try to drum up support.
Mr Johnson claimed he had the support of more than the 100 MPs needed to get through to the next round, which would have likely pitted him against Rishi Sunak.
However on Sunday he said that seeking the top job "would simply not be the right thing to do", adding that the Conservative Party would be too split should he take over.
It leaves Mr Sunak, a former chancellor, as the front-runner in the race for No 10 Downing Street, and he could even win later on Monday without a membership vote if no-one else manages to get support from more than 100 MPs.
A source from Penny Mordaunt's campaign confirmed she was still in the race, and the only person standing in the way of a Mr Sunak victory.
“Penny is the unifying candidate who is most likely to keep the wings of the Conservative Party together and polling shows that she is the most likely candidate to hold on to the seats the Conservative Party gained in 2019,” the source said.
Earlier, allies of Ms Mordaunt disclosed that Mr Johnson had urged her to stand aside and back his campaign, which she refused to do.
Her supporters will be hoping that the departure of Mr Johnson will open up the contest, enabling her to make it on to the final ballot paper.
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