The drama in UK politics hit a new high yesterday as Liz Truss drew a close to her premiership after 44 days in charge, making her the shortest serving UK prime minister in history. The Prime minister gave the statement of resignation to the nation on Thursday morning, bringing an end to a term which has been full of twist and turns. What started out as a promise to deliver fiscal change to the UK economy, ended up being a period of reversal of policy, resignations and changing of the guard.

The Conservative party will now hold a contest to elect a new leader. The process for this normally takes weeks to fulfil, but the rules have been changed to elect a new Prime Minister as soon as possible. It seems that the party want the new leader in power by the 28th October, the Friday before the fiscal announcement is made by the Chancellor on the 31st October. To elect a leader in such a short space of time, any tory member who wishes to stand as a candidate has to have at least 100 nominations, meaning a maximum of three candidates can be put forward. It is hoped that with such a high threshold, there may only be two or just one candidate, to make the process as easy as possible.

For investors the resignation was largely understood and expected. With the reversal of her fiscal policy, a new chancellor in office and other cabinet members resigning, it was only a matter of time.

The markets took the news relatively well, highlighting that this wasn’t a surprise. Sterling rose against both the US dollar and the Euro. Benchmark 30-year Gilts saw yields move slightly lower on Thursday, with prices rising against other government bonds globally. This is positive news for the central bank as they continue to grapple with high inflation and a slowing economy.

UK equities also took the news positively, finishing Thursday in the green. Mid-caps and small-caps benefitted from the rise in sterling and improved prospects of the UK economy. The FTSE 100 also benefitted from this, but to a lesser extent due to the more global nature of the index.

UK markets have opened lower this morning, with Gilt yields in line with global markets. This is understandable as the process for finding a new prime minister is now underway and is difficult for markets to predict at this stage.

Investors will be keeping a close eye on how the leadership race concludes and any changes that a new leader may want to enforce once they are in office. The one positive that can be taken so far is that Jeremy Hunt continuing as chancellor shows that the party is adamant that they want to be fiscally prudent in their policies. The market has priced this more cautious rhetoric far more positively than the loose fiscal policy that Liz Truss and Kwasi Kwarteng tried to bring in. A continuation of this fiscal prudency should continue to be taken positively by the markets moving forward. As we structure our portfolios to invest for the long term, we do not anticipate that this will lead to changes in our models.