Rishi Sunak’s economic approach will lead to a deeper recession than previously thought but will keep a lid on interest rates, according to a top City economist. Thomas Pugh at RSM said the new prime minister’s pledge for fiscal responsibility suggests the country could be facing a fresh wave of austerity.
Combined with the cost-of-living crisis and rising rates, this could lead to a recession deeper than the 2pc previously forecast, he said. However, lower fiscal spending is likely to keep down inflation in the medium term, meaning the Bank of England won’t need to raise interest rates as aggressively.
5 things to start your day
1) Gas prices drop to lowest level since June as hopes grow of mild winter – Fall is likely to boost public finances by reducing cost of energy bailouts
2) Britain is ‘doomed’ and will need IMF bailout, says billionaire investor Guy Hands – Terra Firma founder says UK is on the path to becoming a ‘sick man of Europe’
3) Surging inflation triggers biggest wave of profit warnings since financial crisis – Public companies struggling to stay afloat as City watchdog investigates impact of market turmoil on private equity
4) Paris dims the lights as blackouts threaten disaster for Macron – Years of underinvestment in its aging nuclear fleet risk causing chaos in France this winter
5) Manufacturing costs drop as supply chain chaos subsides – Consumer demand is rapidly cooling as global economies head into recession
What happened overnight
Asian equities fell to new two-and-a-half-year lows on Tuesday as early gains inspired by a rally on Wall Street on hopes the Federal Reserve could be nearing the end of aggressive rate increases were offset by weakness in Chinese shares and the yuan.
The US dollar eased against major peers, while sterling took aim at this month’s highs after Rishi Sunak was set to become Britain’s next prime minister.
Sterling strengthened 0.3pc to $1.13170, heading towards the high this month of $1.1493 from October 5.
Equities were mixed in Asia, with Japan’s advancing 0.7pc and South Korea rising 0.3pc but Taiwan was down 0.7pc and Hong Kong shed 0.6pc.
MSCI’s broadest index of Asia-Pacific shares lost 0.4pc to 428.2 after dipping to 427.4, the lowest since April 2020.
