By Ashley Finill
Today marks the end of the leadership race for the Conservative Party as either Liz Truss or Rishi Sunak will be stepping into their new role as Prime Minister and will see Boris Johnson drop back into the backbenches. The announcement is expected this afternoon by the Conservative Party chairman of the 1922 committee Sir Graham Brady at 12.30pm. It has been heavily predicted for a number of weeks now that Liz Truss is expected to be unveiled as the victor of the contest and will step into Downing Street with the monumental task of helping tackle the staggering rise of inflation and bringing down the cost of living in the UK, as last week’s announcement from Ofgem on what the prices caps for October and next year will be gave a dire outlook and has sent consumers and businesses into panic about unaffordable bills as we head into the colder months. Both Truss and Sunak have both said they have plans to bring in a package to help the nation with this crisis should they become the next Prime Minister, with the general public eager to see some immediate support from government and new PM.
Sterling in Freefall Against the Major Currencies
Ahead of the leadership announcement, sterling has seen its worst performance in the space of a month against the both the Euro and the US Dollar, since the EU referendum. The month of August saw the Pound slump 4.5% against the US Dollar and 3% against the Euro which has seen sterling continue to fall into this month of September. There are a few factors as to why investors have shied away from the pound giving it little to no support over the past few weeks. Firstly, as mentioned above, the unplanned change in Prime Minister brings uncertainty and as such sterling weakens. The poor performing UK economy is also playing its part with the outlook looking bleak as the cost of living is expected to continue to increase rapidly, inflation is now being predicted by some to reach an enormous 22% by next year. The Bank of England are again expected to step in and raise interest rates in the UK by double to 4% by May of next year to help curb the rise of inflation. Another factor for the Pound’s demise has been the conflict in the Ukraine, which is having an effect across the board, not just with Sterling. The US Dollar has seen major gains on both Sterling and the Euro as it is seen as a safe haven currency. For the first time the Dollar and Euro rate has been at parity and now the Dollar has gone on to make further gains against the single currency.
Data Today & This Week
There are several key data releases this week as we have entered the new month of September. Starting with today in the UK at 9.30am with the PMI Composite report, following that at 10am are retail sales figures from the EU, this figure is expected to be marginally better from last month reading at -3.7%, it is expected to make a 3% swing to -0.7% which if correct could see the Euro get off to a positive start to the week giving it a boost in the early morning trading. Not so much a data release but a key even as mentioned above at 12.30pm the new PM will be announced, this may not cause too much volatility given Liz Truss is widely expected to win but more so later in the coming day and weeks with her plans to tackle the current cost of living crisis continuing to loom over the country. Finally to see Monday out at 3.30pm Bank of England committee member Dr Catherine Man speaks, she could give some hints towards the BoE stance on interest rates going forward. See below for the key data releases to be released throughout the week.