15:00 The resignation of the UK prime minister Liz Truss was somewhat positive news for the UK financial markets. The 10-year and 30-year UK guilt rates performed stronger on the new registering some gains, however staying high.
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Earlier in the day, the BOE Deputy Ben Broadbend had said that the bank may not have to raise the interest rates as much as the markets price in. That was based on the assumption of a responsible fiscal plan by the government.
With the prime minister resigning and no clarity yet around who the new prime minister will be, the comments come as premature.
Of note, however, that the interest rates, swap and mortgage rates are driven by the market yields, which are at the moment high, reflecting fundamental risks in the economy.
As to who will replace Mrs. Truss, Bookmaker William Hill said Sunak was the most likely candidate to replace Truss with odds of 2/5, followed by Penny Mordaunt, the leader of the House of Commons, on 2/1.
The working relationship of the new government and the BOE may affect the benchmark rate. If Rishi Sunak is elected, we expect more moderate interest rate increases.
20:30 By the evening Rishi Sunak is the favourite candidate for the prime minister post, most closely challenged by Penny Mordaunt and Boris Johnson. Benn Wallance, Kemi Badenoch and Suella Braverman are also considered likely candidates.
