Sterling leaps as PM appointment soothes markets

Added 12th July 2016

Sterling leapt 1.4% today as markets welcomed the restoration of some stability in British politics following the referendum on European Union membership.

Sterling leaps as PM appointment soothes markets

With Theresa May installed as prime minister, investor confidence in the pound was lifted and it hit $1.31 halfway through Tuesday after languishing in the high twenties before the news.

Equities markets, particularly the FTSE 100, were also boosted by the decrease in their least favourite thing, uncertainty.

Most of that upside came through yesterday though, and today the FTSE 100 was only a marginal 2 points up at 6685, while the 250 was up around 100 points at 16,816.

However according to AJ Bell investment director Russ Mould, the boost from May’s appointment might not last long.

“The FTSE 100 is trading at an 11-month high as it welcomes the prospect of a new Prime Minister and some political stability,” he said. “However, history suggests it takes more than a new incumbent in 10 Downing Street to really get the stock market going. Since the inception of the FTSE All-Share in 1964, three Prime Ministers have taken office mid-way during a Parliament, following the departure of their predecessor – James Callaghan and Gordon Brown for Labour, in 1976 and 2007, and John Major for the Conservatives in 1990.”

“On average, the FTSE All-Share made no progress at all under the trio during their first 12 months in the hot-seat, rising 2.4% over the first three months of the new PM’s tenure, falling 1.5% over six months and coming in flat over a year,” Mould continued. "However, there is a wide range of performance because all three took over under different circumstances – stagflation under Callaghan, recession under Major and a galloping boom that was about to crash under Brown. This makes it clear that while political stability is welcome, there are many other factors at work when it comes to how the stock market performs.”

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.

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