— This is the script of CNBC's financial news report for China's CCTV on October 25, 2022.
In less than two months, Britain will have a third prime minister. The financial markets have given a positive reaction to Sunac's victory. We have seen foreign exchange, bond and stock markets, rise.
The pound rose to $1.1326 at one point. UK 10-year and 30-year government bond yields fell slightly, while the FTSE 100 index closed 0.64% higher.
But investors believe the market will shift its focus back to economic fundamentals after digesting the latest developments in politics.
Stagflation in the UK, combined with fiscal and current account deficits, will limit the potential for the pound to rise. According to analysts, the pound to dollar will hover between 1.1 and 1.15 until the Sunak government announces its policy direction.
Sunac mentioned two key words in his speech after his victory: stability and unity. This actually represents the main challenges he will face after taking office: on the one hand, he wants to stabilize the slowing British economy and financial markets; on the other hand, he also needs to unite the Conservative Party, which is constantly divided internally and whose popularity is declining.
On the economic front, the latest monthly survey released by research firm Standard & Poor's showed that the UK composite purchasing managers' index PMI fell to 47.2 in October, well below market expectations of 48.1. A composite PMI below 50 indicates that the UK manufacturing and service industries are experiencing a decline. Several economists believe that after the recent political and financial market turmoil, the British economy has accelerated and may even be in recession.
And on the political front, Sunac faces an increasingly divided Conservative Party. There are still many members of the party who believe that Sunak played a significant role in the downfall of former Prime Minister Johnson. According to a recent survey conducted by Opinium, only 23% of Britons support the Conservative Party, compared to 50% for its opposition party, the Labour Party. Currently, most analysts believe that there is little chance of a Conservative victory in the next general election.
In the face of many challenges, Sunac's personal background also makes some people doubt whether he is "grounded" enough. An Indian-born British immigrant, he graduated from Oxford and Stanford, then became an investment executive. His wife is the daughter of one of India's top tycoons. This background could lead to controversies when he introduces fiscal plans such as tax increases and public spending cuts.
The Milbank Family Senior Fellow at the Hoover Institution, Stanford University
"Rishi Sunak is a wealthy guy. He's from a middle class background, went to a private school and went to Oxford. , this inevitable austerity and disinflationary policy to the British public."
Indeed, it could be a tough winter for the British public. Taxes are likely to rise, inflation remains high, and there is a wave of strikes, power outage warnings, and more. Some analysts say that some Britons may already be deciding in their minds who the next leader will be, and not just the head of the Conservative Party.