By Bansari Mayur Kamdar and Shashwat Chauhan
(Reuters) -Britain's main equity indexes closed higher on Monday as Rishi Sunak looked set to become the next prime minister after other candidates quit the race, offering investors some relief after a tumultuous few weeks in British politics.
The blue-chip FTSE 100 gained 0.6%, while the domestically focused FTSE 250 index jumped 0.8%.
The British pound rose in volatile trading, while gilts jumped after Sunak won the race on Monday to lead the Conservative Party, tasked with steering a deeply divided country through an economic downturn that is poised to leave millions of people poorer.
Sunak becomes Britain's third prime minister in less than two months and takes charges after Liz Truss, the outgoing leader who only lasted 44 days in the job, unveiled unfunded tax cut plans that battered investment confidence and put the government at loggerheads with the Bank of England.
"The markets are confident that they know the kind of Prime Minister Rishi Sunak is likely going to be because they know the kind of chancellor that he was and clearly he understood how damaging those unfunded tax cuts were likely to be," said Danni Hewson, financial analyst at AJ Bell.
The FTSE 100 is on pace to end October higher, up 1.6% so far, after two months of declines.
Meanwhile, a survey showed British businesses in October are suffering their worst month since January 2021, when they were under a COVID-19 lockdown.
Shares of China-exposed stocks such as Prudential (LON:PRU) tumbled 9.3 after Chinese President Xi Jinping's newly unveiled leadership team heightened fears that economic growth will be sacrificed for ideology-driven policies.
Among single stocks, Pearson (LON:PSON) climbed 8.7 after the education company said it was on track to meet its expectations for the year after nine months of strong trading, led by an "outstanding" result in English language learning.