Rishi Sunak has won race for prime minister. This in turn has eased the nerves of investors.
The pound stayed mostly unchanged against the dollar on Monday afternoon. Earlier Monday, the pound had risen close to $1.14 against the dollar before falling back.
Former PM Boris Johnson withdrew from of the race on Sunday.
Investors were spooked after then-Chancellor Kwasi Kwarteng promised for major tax cuts without saying how they would be paid for – something Mr Sunak warned about during this summer’s Tory leadership contest.
On Friday, the pound fell as low as $1.11 and government borrowing costs rose amid continued political uncertainty and fresh warnings about the UK economy. Mr Hunt – who is backing Mr Sunak – is scheduled to set out the government’s economic plan for taxes and spending on 31 October. He warned the government is facing “decisions of eye-watering difficulty”.
A fall in the value of the pound increases the price of goods and services imported into the UK from overseas – because when the pound is weak against the dollar or euro, for example, it costs more for companies in the UK to buy things such as food, raw materials or parts from abroad. If businesses pass on those higher costs to customers, a weaker pound can help push up inflation – the rate at which prices rise.
Sterling has also been under pressure recently due the strength of the US dollar. However, the pound’s weakness in recent weeks has been most tied to mounting concerns about the outlook for the UK’s economy and public finances.
The UK is also borrowing billions of pounds to limit energy bill rises for households and businesses. Borrowing – the difference between spending and tax income – was £20bn in September, up £2.2bn from a year earlier, the Office for National Statistics said. It was the second highest September borrowing since monthly records began in 1993. The Institute for Fiscal Studies think tank predicted borrowing this year could reach £194bn, almost double the figure previously forecast by The Office For Budget Responsibility.
Source: BBC