The pound, FTSE 100 and gilts all rallied as Liz Truss resigned as Prime Minister after just a month and a half.
In a statement outside 10 Downing Street Truss said that she had met King Charles to inform him of her decision.
“Given the situation I cannot deliver the mandate on which I was elected by the Conservative Party," she said.
At 45 days, she will be the shortest-serving prime minister in UK history (and failed to outlast the Daily Star's lettuce), though she will stay in the role as a caretaker until the party chooses another leader – who will be the third PM of the year (the most since 1834, when there were four).
A leadership race will be decided by Tory MPs “within the next week”, Truss said.
Sterling jumped from US$1.118 this morning to US$1.13, while gilt yields across the spectrum continued the falls that began since Jeremy Hunt was made chancellor and overturned most of the changes Truss had made since entering Number 10.
Hunt said he will still deliver his promised fiscal statement at the end of October, and would not stand in the race to be the next PM.
Our lettuce wins as Liz Truss resigns! https://t.co/dkmEDw06o9— Daily Star Breaking News (@StarBreaksNews) October 20, 2022
Market moves
After a flurry of financial market activity, there was are seeing a retracement of the initial moves, said market analyst Neil Wilson at Markets.com, "as markets realise that there’s still huge uncertainty about whether the Tory party can survive in power.
“The economic policies were already dead in the water so the market doesn’t have a huge amount of genuine new information to move on despite the seismic events of the last 24 hours."
Truss standing “maybe" allows for a new leader to see out the parliamentary term and is likely to result in fiscal restraint, Wilson added. “Underlying problems facing the economy remain acute. Two years to fix the economy and Tory popularity – can it be done? Does ousting Truss open up fresh divisions and does BoJo make a return?!"
While markets initially greeted the news slightly positively, Joachim Klement at broker Liberum said, "what markets are really looking for now is stable government and competent leadership.
“We think the developments put us on a path to remove the risk premium present in gilts since the mini-budget on 23 September."
Victoria Scholar, head of investment at Interactive Investor, said: "There is still plenty of caution towards the UK as an investment destination given the ongoing political uncertainty, the growing risk of recession and Britain’s persistent inflation problem with price levels hovering at 40-year highs.
“Focus among investors now shifts to the leadership election, the Chancellor’s medium-term fiscal plan on 31st October and the Bank of England’s rate decision in early November."
The pound retraced to a familiar recent level of 1.1260, while the FTSE 100 initially popped to a high of the day at 6,955 before dropping back to 6,900, with the more domestically focused FTSE 250 climbing out of the red on the news and while trimming gains remained in positive territory at 17,293.
Gilts rallied with the 30yr yield dropping under 3.8% from a high of 4.156% earlier before easing back up above 3.94%.The FTSE 250 jumped from being in the red to trade up 100pts or so, a gain of 0.6% on the day as of send time.
In other words, said Paul Dales, chief UK economist at Capital Economics said, "the markets are further pricing out the risk premium that the Truss government generated. There is still a lot of uncertainty, but the lesson surely is that the economic, fiscal and financial market backdrop matters."
The swing in fiscal policy from ultra loose, to less loose to outright tight, "has increased the downside risks to our forecast that the economy will enter a recession involving a peak-to-trough fall in GDP of around 2%, although that itself means there is also a downside risk to our forecast that interest rates will rise to 5.00%," Dales said.
Opposition parties responded to Truss's decision by calling for a general election.
"The British public deserve a proper say on the country's future... we need a general election - now," said Labour, while the Liberal Democrats told media. “we do not need another Tory PM lurching from crisis to crisis - we need a general election."
The SNP said: "A general election is now a democratic imperative."
** UPDATE: adds comments, detail **