Financial Stability with Sunak?

It looks like Rishi Sunak has a good chance of becoming Prime Minister after Boris Johnson withdrew his challenge with a judicious and well phrased statement. I welcome Sunak who I always thought was the best candidate and his financial background should at least mean that he understands how to manage the economy and stabilise markets – the same cannot be said for Penny Mordaunt.

Liz Truss and her Chancellor did not seem to comprehend that the UK cannot plough ahead with massive tax cuts and increases in Government borrowing without considering the international reaction from the IMF and those who would need to finance the borrowing.

Neither they nor the advisors in the Treasury and the Bank of England seem to have learned from history. Back in 1974 after a boom generated by Barber the Conservatives lost an election to Labour but by 1976 Harold Wilson had resigned and James Callaghan faced a run on the pound, The UK Government had to go to the IMF for a massive loan obtained with promises of budget cuts.

The moral is that the UK cannot make financial decisions about the economy and Government debt without taking into account the reaction of lenders. The Prime Minister and Chancellor might have thought they were masters of their own destiny but they were grossly mistaken about the real world we now live in.

Barber’s tax-cutting boom also generated high inflation so you can understand why the international financial community ran scared in the face of another similar result. That raised the spectre of falling gilt prices and higher gilt yields thus destabilising both gilt and equity markets. Pension funds were badly affected because of the LDI investment strategies used by pension funds which caused them to dump property funds.

Liz Truss does not seem to have realised that the UK is a small player in international financial markets. The UK cannot act regardless of the opinion of others however attractive it might be to play to the home crowd by pushing for a “growth” policy.

Perhaps she was badly advised by those too young to remember past events in history. But Rishi Sunak had a different plan which we will no doubt now fall back on.

Some people have called for a general election at this point in time but the last thing we need is several months of political knock-about theatre. That would not inspire international confidence. Sunak should help to stablise markets even if he has some tough problems to cope with such as the ongoing energy crisis, war in Ukraine and high inflation. But my view is that a Sunak premiership should be good for the UK stock market.

Roger Lawson (Twitter:  )

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How to Choose the Next Prime Minister

I have watched the debates of the candidates for the next leader of the Conservative Party, and hence for the position of Prime Minister. I am not a Conservative Party member so will not get a vote but for such an important job it is worth stating how I might decide who I would prefer.

I do not think it is worth deciding on the basis of their stated policies. They all believe in tax cuts, but some sooner than later. None of them talked about how they would cut Government expenditure to maintain a balanced budget and allow room for tax cuts. They all believe in the net zero carbon emissions policy although within what is affordable and achievable.

But policies advocated by politicians tend to change after they get elected and get faced with the realities of advice from civil servants, the Bank of England and opinion polls.

There is a simple way to decide who to support. Who would you wish to work for if offered a job as a cabinet member in their administration? Who is a leader you could follow and have some trust in? Who appears confident and decisive, requirements for any natural leader? Who has the charisma to win over colleagues in your party to your adopted policies and in due course the general public so you can win the next general election?

On that basis I think there are only two candidates who pass those hurdles – Rishi Sunak and Tom Tugendhat. But Penny Mordaunt and Liz Truss seem less confident while Kemi Badenoch is an unknown quantity to many voters. Unfortunately ladies who wish to get elected need to be forceful and exude confidence like Margaret Thatcher always did but the three now standing do not. They are not obviously born leaders who could unite a divided Conservative Party which always has a tendency to fragment.

Boris Johnson had the required profile which is why he was successful at winning elections, but fell down on other personal qualities and clearly won’t be invited to join the next administration as he is now a political liability.

As between Rishi and Tom, the former has more ministerial experience and should have a stronger financial background so I would tend to go for the former. Wealthy people tend to be a political liability in the UK where the politics of envy is so pervasive but I think Rishi has the personal charisma to overcome such prejudices and he certainly delivers good speeches.

How Conservative Party Members and MPs view these issues will soon be revealed but I hope they follow the same chain of thought.

Roger Lawson (Twitter:  )

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