The race for 10 Downing Street has taken a decisive turn, with the City of London now signalling its preferred candidate for the nation’s top economic post. As the Conservative leadership contest narrows to a two-horse race between Rishi Sunak and Liz Truss, financial analysts and hedge fund managers have begun to price in the probability of each contender’s victory, and the consequent impact on fiscal policy.
The role of chancellor of the exchequer, currently held by Nadhim Zahawi, is regarded as the second most powerful position in government. Its occupant will inherit a fragile economy, double-digit inflation, and the highest tax burden since the 1950s. Betting markets and investment banks have coalesced around the view that a Sunak premiership would result in a continuity chancellor, likely Jeremy Hunt or Sajid Javid. Truss, by contrast, is expected to appoint a loyalist, possibly Kwasi Kwarteng or Simon Clarke, who would pursue her agenda of immediate tax cuts.
“The market is pricing in a Sunak victory, but the margin is thin,” said a senior analyst at a leading City investment bank. “Truss’s plans for unfunded tax reductions have spooked bond traders. A Truss chancellor would face an immediate credibility test.” Sterling has weakened against the dollar in recent weeks, a reflection of the uncertainty. The FTSE 100 has remained relatively stable, but the gilt market has shown signs of stress.
Both candidates have outlined starkly different economic visions. Sunak advocates fiscal discipline, warning that “inflation is the enemy that, once entrenched, is hardest to defeat.” Truss argues for lower taxes as a growth stimulus, drawing comparisons to the Reagan and Thatcher eras. The next chancellor will be tasked with delivering a budget this autumn, a prospect that has already prompted warnings from the Office for Budget Responsibility about the sustainability of public finances.
The contest has drawn international attention. Washington and Brussels are watching closely, given the UK’s role in European security and global finance. A source close to the Treasury said that senior civil servants are preparing briefing papers for both eventualities. “The machine is ready for either outcome,” the source said. “But the market mood is one of caution.”
The final decision rests with the 180,000 Conservative Party members, who will cast their ballots by 5 September. Until then, the City will continue to hedge its bets, but the smart money is already moving.
