Sterling drops on currency markets as Tories jostle for power

Sterling was on the back foot on currency markets on Friday as Britain entered another political rollercoaster after the resignation of Prime Minister Liz Truss . The pound fell 0.8 per cent to a weekly low of $1.115, reversing a brief rally after Ms Truss announced her departure. It dropped 0.5 per cent against the euro, to €1.142. The slide came as Conservative MPs began manoeuvring for the frantic week-long leadership contest to succeed Ms Truss. The picture was highly uncertain, with Rishi Sunak , Boris Johnson and Penny Mordaunt in the frame to succeed Ms Truss but none of them considered the clear favourite. Negative news from economic indicators also weighed on the market. Friday figures showed lower consumer spending and higher government borrowing than expected last month, underlining the scale of the economic challenge. The blue-chip FTSE 100 index fell 0.6 per cent in early trading. The yield on the British government's 30-year bond, or gilt, climbed back above four per cent on Friday as traders mulled over the political crisis. "The problems facing the UK have not gone away, despite the removal of Liz Truss as PM," Stuart Cole, chief macroeconomist at brokerage Equiti Capital and a former Bank of England trader, told The National . Mr Cole said sterling's slide was partly down to a strong dollar, but also reflected the ongoing political turmoil. "It is further change and every time this happens the bar for restoring investor credibility in gilts, sterling – indeed the UK in general – gets raised higher,and I think we are seeing this being reflected today as both sterling and UK assets take a move lower," he said. "I think it will be at least the New Year before a modicum of confidence starts to return." Chancellor of the Exchequer Jeremy Hunt said in response to the new economic figures that he would make the "difficult decisions" to reassure markets about the state of Britain's finances. "We will do whatever is necessary to drive down debt in the medium term and to ensure that taxpayers’ money is well spent, putting the public finances on a sustainable path as we grow the economy," he said. Markets.com analyst Neil Wilson said markets were retracing their initial moves as they take in the "huge uncertainty" that remains. "The economic policies [of Ms Truss] were already dead in the water so the market doesn't have a huge amount of genuine new information to move on despite the seismic events of the last 24 hours," he said. Market moves have been eagerly watched in Westminster since a botched mini-budget on September 23 drove Britain into economic turmoil. The package of more than £40 billion ($44.5bn) in tax cuts led to a crash in sterling's value, a jump in mortgage costs and an emergency intervention by the Bank of England to protect pension funds . Ms Truss's authority never recovered from the mayhem and she announced her resignation on her 45th day in office , making her Britain's shortest-serving prime minister. The contest to succeed her is being compressed into a week so that the new leader will be in place before October 31, when the chancellor is expected to set out a new fiscal plan. A budget forecast will be published on that date after Mr Hunt tore up the Truss plan, by cancelling cuts in income and corporation tax and reining in subsidies for energy bills. Allies of Mr Sunak, who has yet to say whether he will enter the race, said the former chancellor had been vindicated after advising against Ms Truss's tax cuts over the summer. But supporters of Mr Johnson say he is the man to lead the Tories out of a catastrophic polling slump, having won the last election with an 80-seat majority.

Sterling drops on currency markets as Tories jostle for power

Retail and borrowing figures make clear the scale of economic challenge facing UK