Why The UK Needs To Find A Global Solution To Its Economic Crisis

To investors, sound and stable economic policies matter much more than the person residing in Number 10. And that's why, even with a new prime minister, recent market movements indicate investors continue to see more significant issues with the UK economy, both immediately and over the longer term.

Recent changes in the UK's top job have had a positive effect on pound sterling and long-term sovereign bond yields. But the financial market reaction has been muted compared with the financial turmoil blamed on former prime minister Liz Truss and ex-chancellor Kwasi Kwarteng in recent weeks.

After the mini-budget on September 23, the markets reacted to a bad policy: Truss's strategy to undertake massive tax cuts without providing much certainty on how this would be funded. Its reversal brought bond yields down from recent highs (essentially reducing the cost of government borrowing) and saw the pound appreciate. But overall, the market losses seen following the mini-budget have barely been recovered.

To investors, sound and stable economic policies matter much more than the person residing in Number 10. And that's why, even with a new prime minister, recent market movements indicate investors continue to see more significant issues with the UK economy, both immediately and over the longer term.

In the short term, yields on UK sovereign bonds have shot up after the mini-budget, increasing the government's cost of borrowing. The lack of an accompanying forecast by the Office of Budgetary Responsibility (OBR) exacerbated this negative reaction.