NIEUWS EN ANALYSES

This morning’s cabinet shuffle turned out to be exciting after all, as Chancellor Sajid Javid resigned after reportedly being asked to replace his staff of advisors with choices picked by Number 10.

The pound’s positive reaction to Sajid Javid’s resignation does look a bit puzzling.

The most plausible narrative to explain the rally in sterling is that markets are interpreting the news as a sign Boris has taken direct control of fiscal policy, and that a Trumpian spending spree will ensue, raising prospects for growth and inflation in the short run.

 

 

Rishi Sunak’ profile is in line with what you’d expect for a Chancellor, but his appointment is far less significant than the circumstances of Sajid Javid’s departure, particularly the reports of Downing street insisting that the former Chancellors advisers were all sacked and replaced with picks from Number 10.

This suggests that Downing Street is looking to take far more control of fiscal policy – and the most obvious reason for wanting to do that is to expand spending to boost the economy.

At the margin this is a positive development for sterling, given that a big whack of fiscal spending would indeed lift growth and lower the chances of a rate cut this year.

March’s budget was already expected to feature significant spending  commitments, but today’s events have raised expectations even further.

Expect this to be a red letter day for UK markets and sterling.

 

Author: Ranko Berich, Head of Market Analysis at Monex Europe

 

 

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