What does the British Prime Minister’s battle do with the pound sterling?

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  • The battle for the British premiership is between Rishi Sunak and Liz Truss, two candidates with different views on the British economy.
  • The election battle could have consequences for the British pound.
  • Currency expert Just Dirks of iBanFirst argues that Truss’ win could herald a more turbulent period for the British pound.

Analysis – Across the Channel, the tabloids are filled with it: the battle for Boris Johnson’s succession as British Prime Minister. Two nominees remain: Rishi Sunak and Liz Truss. They will decide in the coming weeks who will succeed Johnson as UK prime minister in September.

This is the third time in six years that the UK has had a new Prime Minister. A short trip through time: Prime Minister David Cameron resigned in 2016 when a slim majority of Britons chose to leave the European Union in the Brexit referendum.

Behind Cameron Theresa May. Things went really smoothly, by the way. After two rounds of voting between the Conservatives in the House of Commons, May and Andrea Leadsom were the only candidates left. But due to May’s significant lead in the polls, Leadsom chose to withdraw rather than campaigning all summer.

Three years later, May had to leave the field again when she failed to properly steer the country out of the European Union.

After a fierce election battle within the Conservative Party, Boris Johnson succeeded her in 2019. But recently, a series of scandals have increased pressure on Johnson. So Johnson had to announce his resignation early this month.

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In particular, the parties he attended while the entire country was paralyzed by the coronavirus lockdowns will be remembered for a long time to come.

Meanwhile, a fight broke out between former Finance Minister Sunak and Foreign Minister Truss over the preference of nearly 200,000 members of the Conservative Party.

Sunak and Truss: Different Ideas for the British Economy

Polls close at 5:00 p.m. local time on Friday, September 2nd. The outcome, which will be announced on Monday, September 5th, also has consequences for the currency markets. There are very big differences in economic and Brexit plans between the candidates.

As Chancellor of the Exchequer in Johnson’s government, Sunak raised taxes to the highest level since the 1950s, and hinted that if he became prime minister, that would not change. Lower taxes may drive sky-high inflation.

On the other hand, Truss wants nothing more than to lower tax rates as quickly as possible. This would give many Britons struggling to make ends meet some extra financial space. However, the low tax revenue makes it difficult to regulate the government budget.

British Pound: Trouble with Gear

The rapid build-up of British government debt could undermine confidence in the British pound. Also in terms of Brexit policy, Truss’ victory could be a stepping stone to a somewhat more turbulent period for the British currency. She was in fact an outspoken supporter of the confrontation that Johnson sought with the European Union over inadequate control over the movement of goods between Northern Ireland and the British mainland.

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Sunak supports improving cooperation with Europe. This could result in the pound reaching calmer waters.

However, according to British bookmakers, Truss has the best chance of becoming the new prime minister in early September. Either way, the British pound is headed into a hot and exciting summer.

Joost Derks is a currency specialist in iBanFirst. He has more than twenty years of experience in the currency world.

Sophie Baker

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