Don’t expect Britain’s first hedge fund premiership to be smooth or enjoyable | Ed Conway

Published

3 years ago

October 24, 2022

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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.

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.

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

CBI kicks off search for successor to ‘saviour’ Soames

Published

4 hours ago

July 3, 2025

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CBI kicks off search for successor to 'saviour' Soames

The CBI has begun a search for a successor to Rupert Soames, its chairman, as it continues its recovery from the crisis which brought it to the brink of collapse in 2023.

Sky News has learnt that the business lobbying group’s nominations committee has engaged headhunters to assist with a hunt for its next corporate figurehead.

Mr Soames, the grandson of Sir Winston Churchill, was recruited by the CBI in late 2023 with the organisation lurching towards insolvency after an exodus of members.

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The group’s handling of a sexual misconduct scandal saw it forced to secure emergency funding from a group of banks, even as it was frozen out of meetings with government ministers.

One prominent CBI member described Mr Soames on Thursday as the group’s “saviour”.

“Without his ability to bring members back, the organisation wouldn’t exist today,” they claimed.

Mr Soames and Rain Newton-Smith, the CBI chief executive, have partly restored its influence in Whitehall, although many doubt that it will ever be able to credibly reclaim its former status as ‘the voice of British business’.

Its next chair, who is also likely to be drawn from a leading listed company boardroom, will take over from Mr Soames early next year.

Egon Zehnder International is handling the search for the CBI.

“The CBI chair’s term typically runs for two years and Rupert Soames will end his term in early 2026,” a CBI spokesperson said.

“In line with good governance, we have begun the search for a successor to ensure continuity and a smooth transition.”

Business

Ryanair and easyJet cancel hundreds of flights over air traffic control strike

Published

4 hours ago

July 3, 2025

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Ryanair and easyJet cancel hundreds of flights over air traffic control strike

Ryanair and easyJet have cancelled hundreds of flights as a French air traffic controllers strike looms.

Ryanair, Europe’s largest airline by passenger numbers, said it had axed 170 services amid a plea by French authorities for airlines to reduce flights at Paris airports by 40% on Friday.

EasyJet said it was cancelling 274 flights during the action, which is due to begin later as part of a row over staffing numbers and ageing equipment.

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The owner of British Airways, IAG, said it was planning to use larger aircraft to minimise disruption for its own passengers.

The industrial action is set to affect all flights using French airspace, leading to wider cancellations and delays across Europe and the wider world.

Ryanair said its cancellations, covering both days, would hit services to and from France, and also flights over the country to destinations such as the UK, Greece, Spain and Ireland.

Group chief executive Michael O’Leary has campaigned for a European Union-led shake-up of air traffic control services in a bid to prevent such disruptive strikes, which have proved common in recent years.

He described the latest action as “recreational”.

“Once again, European families are held to ransom by French air traffic controllers going on strike,” he said.

“It is not acceptable that overflights over French airspace en route to their destination are being cancelled/delayed as a result of yet another French ATC strike.

“It makes no sense and is abundantly unfair on EU passengers and families going on holidays.”

Ryanair is demanding the EU ensure that air traffic services are fully staffed for the first wave of daily departures, as well as to protect overflights during national strikes.

“These two splendid reforms would eliminate 90% of all ATC delays and cancellations, and protect EU passengers from these repeated and avoidable ATC disruptions due to yet another French ATC strike,” Mr O’Leary added.

Business

How markets reacted to uncertainty over Rachel Reeves’s future

Published

10 hours ago

July 3, 2025

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How markets reacted to uncertainty over Rachel Reeves's future

The pound fell and state borrowing costs rose during a period of uncertainty over the chancellor’s future on Wednesday.

During Prime Minister’s Questions, Sir Keir Starmer declined to guarantee whether a visibly emotional Rachel Reeves would remain chancellor until the next election following the government’s welfare bill U-turn.

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Following his remarks, the value of the pound dropped and government borrowing costs rose, via the interest rate on both 10 and 30-year bonds.

Although market fluctuations are common, there was a reaction following Sir Keir’s comments in the Commons – signalling concern among investors of potential changes within the Treasury.

Sterling dropped to a week-long low, hitting $1.35 for the first time since 24 June. The level, however, is still significantly higher than the vast majority of the past year, having come off the near four-year peak reached yesterday.

While a drop against the euro, took the pound to €1.15, a rate not seen since mid-April in the aftermath of President Donald Trump’s tariff announcements.

Meanwhile, the interest rate investors charge to lend money to the government, called the gilt yield, rose on both long-term (30-year) and ten-year bonds.

The UK’s benchmark 10-year gilt yield – so-called for the gilt edges that historically lined the paper they were printed on – rose to 4.67%, a high last recorded on 9 June.

And 30-year gilt yields hit 5.45%, a level not seen since 29 May.

Both eased back in the hours following – as a spokesperson for the prime minister attempted to quell speculation about the chancellor’s future.

Sky News understands the prime minister made clear to the chancellor that she has his “complete support” and remains integral to his project.

Ms Reeves has committed to self-imposed rules to reduce debt and balance the budget. Speculation around her future led investors to question the government’s commitment to balancing the books – and how they would do that.

The questions over her future came after the government scrapped the core money-saving component of its welfare bill, which had been intended to reduce spending in order to meet fiscal rules.