Don’t expect Britain’s first hedge fund premiership to be smooth or enjoyable | Ed Conway
Rishi Sunak is not just our first British Asian prime minister, our first Hindu PM.
He is not just the youngest prime minister of the modern era. He is also the youngest since the Napoleonic wars and the first millennial PM.
Just as intriguingly, and possibly even more consequentially, he is Britain’s first hedge fund prime minister too.
Before he was a politician, Mr Sunak worked in finance, both at Goldman Sachs and Chris Hohn’s hedge fund – The Children’s Investment Fund Management. His time in the sector was relatively short, but it nonetheless makes for a CV quite unlike almost every other resident of 10 Downing Street.
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Markets shaped him. And now, at the very point when the rise and fall of certain benchmarks are influencing British politics more than in any era since at least the early 1990s, we have a prime minister who takes those markets unusually seriously.
Markets helped him through the door. For, in the end, what did for Liz Truss was the extraordinary response to her mini-budget, which contributed to a dramatic leap in interest rates on both government debt and mortgages. That in turn triggered a crisis in the gilt markets which underlie Britain’s financial system.
And markets have welcomed him. The news that Boris Johnson was pulling out of the leadership race was followed by a sudden rise in the value of the pound. When trading opened in government bonds this morning, they very quickly rallied. The implied interest rate on these bonds dropped sharply.
And since these markets are the foundations of the rest of the financial system, that had an instant effect on prices elsewhere. After the mini-budget, traders were expecting Bank of England interest rates to rise to well above 6% next year; this morning the expected peak dropped below 5% for the first time since that fiscal event.
At this stage you are doubtless wondering: why on earth does any of this matter? Why are we paying so much attention to the markets? Why (as some might put it) is Britain allowing the whims of the globalist elite – the “Davos consensus” – to shape its policy? Whatever happened to democracy?
And, frankly, you have a point. A democratic country’s policies should be shaped by politicians elected by its people. That’s part of the unwritten social contract that binds us.
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But the reality – depressing as it might be – is that the ability of those politicians to act is circumscribed by markets. They can, to give you a straightforward example, only borrow to the extent that investors around the world are willing to lend them money.
Markets matter not because they are right or wrong (that’s not how it works) but because that’s where the money is. And Britain, a country with enormous “twin deficits” on its current account and government account, is more reliant than pretty much any other developed economy on borrowing from those markets. This is just the way it is – ask anyone who worked at Goldman Sachs.
And that logic is worth keeping in mind as Britain’s first hedge fund prime minister takes office and begins to shape policy. Our ability to do what we want to do as a country is dependent on persuading the millions of investors around the world, taking second-by-second decisions on where to put their money, that we are on the right course. Other prime ministers (certainly the last couple) tried to ignore that; it’s unlikely that a “hedge fund prime minister” would.
However, the economic challenges that face Mr Sunak go well beyond the tick-tick-tick of a gilt chart. He enters Number 10 with the UK economy quite plausibly in recession. Energy costs remain at unprecedented highs (even though the wholesale cost of gas has fallen sharply).
So too do food prices and the costs of all sorts of household sundries. Further shocks from the Ukraine war seem highly likely. And on top of this, households will have to contend, in the coming year or so, with a very sharp increase in mortgage costs. Even the slight improvement in those interest rates since Mr Sunak became the odds-on favourite for PM does little to change that.
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Rishi Sunak’s rise to power
In short, even in a best-case scenario for the markets, the coming months for the UK economy are likely to feel grim, with households squeezed at every corner – more than they have been for decades. One can argue the toss over who bears the most responsibility for this – whether that’s the Tory party, central banks or, yes, markets. But that’s what we’re heading for.
Mr Sunak spent most of his time as chancellor doling out money during the pandemic. Normally in a recession, governments tend to “loosen fiscal policy” – which is to say, dole out more money.
But that brings us back to markets. Will those investors be relaxed about Britain borrowing more in the coming years? Will they be assured enough by the hedge fund credentials of the PM to give Britain the benefit of the doubt? Will Mr Sunak want to take that risk?
The past few weeks have been an astonishing ride in politics. We are now off the Truss rollercoaster. The Sunak journey might feel different; it might not have the same twists and turns; but don’t expect it to be especially smooth or enjoyable either.
Business
HSBC ‘being attacked all the time’ by online criminals – as boss ‘kept awake at night’ by cyber threat
The boss of one of the UK’s biggest banks says it is being attacked “all the time” by online criminals and he is kept up at night by cyber threats.
“It does keep me awake,” HSBC UK chief executive Ian Stuart told the Treasury Committee of MPs.
“Because we can be attacked and we are being attacked all the time.”
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Mr Stuart said banks were spending “enormous” sums of hundreds of millions of pounds on IT systems – the biggest expense in their businesses.
“Cybersecurity is now very much at the top of our agenda,” he added.
Ian Stuart, chief executive of HSBC UK, appearing before the Treasury Committee. Pic: PA
Concerns were also highlighted by Lloyds Bank chief executive Charlie Nunn, who said financial fraud will get worse if banks cannot intervene to prevent it and social media and telecoms companies are not incentivised to halt it.
Mr Nunn said the UK “has become the home of fraud”, adding that the number of victims is “pretty disturbing” and “individual cases are harrowing”.
Major high street businesses, including M&S and the Co-op, have been hit by cyber attacks in recent weeks and had their operations impacted.
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Cybersecurity threats, however, were not behind the several-day outage at Barclays at the end of January, its UK chief executive Vim Maru said.
He added: “We’ve learned the lessons. We’re acting on the lessons, both work done internally, but also with help from third parties as well.
Account holders across the UK have suffered a spate of IT glitches from different banks around paydays this year.
Tens of millions of pounds on IT have been spent and customer glitches have fallen, Mr Maru said.
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He added that the problem at Barclays was a software issue, saying: “We put a fix in place that means that we won’t have a recurrence.”
The steel tycoon Sanjeev Gupta is mounting a last-ditch bid to salvage his British operations after seeing an emergency plea for government support rejected.
Sky News has learnt that Mr Gupta’s Liberty Speciality Steels UK (SSUK) arm is seeking to adjourn a winding-up petition scheduled to be heard in court on Wednesday.
The petition is reported to have been brought by Harsco Metals Group, a supplier of materials and labour to SSUK, and is said to be supported by other trade creditors.
Unless the adjournment is granted, Mr Gupta faces the prospect of seeing SSUK forced into compulsory liquidation.
That would raise questions over the future of roughly 1,450 more steel industry jobs, weeks after the government stepped in to rescue the larger British Steel amid a row with its Chinese owner over the future of its Scunthorpe steelworks.
If Mr Gupta’s operations do enter compulsory liquidation, the Official Receiver would appoint a special manager to run the operations while a buyer is sought.
A Whitehall insider said talks had taken place in recent days involving Mr Gupta’s executives and the Insolvency Service.
Steel industry sources said the government could conceivably be interested in reuniting the Rotherham plant of SSUK with British Steel’s Scunthorpe site because of the industrial synergies between them, although it was unclear whether any such discussions had been held.
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Mr Gupta is said to have explored whether he could persuade the government to step in and support SSUK using the legislation enacted last month to take control of British Steel’s operations.
Whitehall insiders said, however, that Mr Gupta’s overtures had been rebuffed.
He had previously sought government aid during the pandemic but that plea was also rejected by ministers.
The SSUK division operates across sites including at Rotherham in south Yorkshire and Bolton in Lancashire.
It makes highly engineered steel products for use in sectors such as aerospace, automotive and oil and gas.
A restructuring plan due to be launched last week was abandoned at the eleventh hour after failing to secure support from creditors of Greensill, the collapsed supply chain finance provider to which Mr Gupta was closely tied.
Under that plan, creditors, including HM Revenue and Customs, would have been forced to write off a significant chunk of the money they are owed.
The company said last week that it had invested nearly £200m in the last five years into the UK steel industry, but had faced “significant challenges due to soaring energy costs and an over-reliance on cheap imports, negatively impacting the performance of all UK steel companies”.
It adds: The court’s ability to sanction the plan depended on finalisation of an agreement with creditors.
“This has not proved possible in an acceptable timeframe, and so Liberty has decided to withdraw the plan ahead of the sanction hearing on May 15 and will now quickly consider alternative options.”
One source close to Liberty Steel acknowledged that it was running out of time to salvage the business.
They said, however, that an adjournment of Wednesday’s hearing to consider the winding-up petition could yet buy the company sufficient breathing space to stitch together an alternative rescue deal.
A Liberty Steel spokesperson said on Tuesday: “Discussions continue with creditors.
“Liberty understands the concern this will create for Speciality Steel UK colleagues and remains committed to doing all it can to maintain the Speciality Steel UK business.”
The Insolvency Service and the Department for Business and Trade have also been contacted for comment.
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