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FTSE steady as Rishi Sunak takes over as UK prime minister

King Charles III welcomes Rishi Sunak during an audience at Buckingham Palace. The FTSE was lower on Tuesday
King Charles III welcomes Rishi Sunak during an audience at Buckingham Palace. The FTSE is down on the day. Photo: Aaron Chown/Reuters (POOL New / reuters)

European stock markets were mostly higher on Tuesday as Rishi Sunak was officially sworn in as UK prime minister.

In London, the FTSE 100 (^FTSE) closed flat after spending most of the day in the red, it managed to close just above points after ending at its strongest level in two weeks on Monday.

The CAC (^FCHI) advanced 1.8% in Paris, and the Frankfurt DAX (^GDAXI) gained 0.8% despite German business confidence dropping from 84.4 to 84.3 points in October.

Read more: Rishi Sunak's first speech as UK prime minister lifts pound against dollar

It comes as Sunak will met King Charles to be invited to form a government after Liz Truss ended the briefest ever stint as prime minister.

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"I will bring the same compassion to the challenges we face today," he said outside of 10 Downing Street, adding that he will not leave the next generation with a "debt to settle that we were too weak to pay ourselves".

"I will unite our country not with words but with action. I will work day in and day out to deliver for you."

He paid tribute to Liz Truss, saying she was not wrong to want to improve growth in this country, but that "mistakes were made".

Michael Hewson of CMC Markets said: "Markets are hoping that the coronation of Rishi Sunak as the next UK prime minister will help draw a line under the events of recent days, as the new PM elect warned his party that they needed to unite or die. This may prove to be a tall order, given the Tories propensity for fratricide over the years,"

"Given recent events it’s likely that the old divisions may well reassert themselves in the coming days, as things settle down, or if the polls don’t improve, however given recent events it would be quite something to see an immediate rebound in the government’s political fortunes."

Read more: Cost of living: Prices of pasta and tea soar as inflation bites

On Tuesday, the boss of Britain’s largest business lobby group warned Sunak against pursuing an austerity “doom loop”.

Tony Danker, head of the Confederation of British Industry (CBI), said it could lead to a repeat of the weak economic growth since the financial crisis, and that Sunak would have to look at policies such as planning reform or liberalising immigration.

He told BBC’s Radio 4: “We’re going to find out on Monday that if all there is is tax rises and spending cuts and there’s nothing in there about growth, the country could end up in a similar doom loop where all you have to do is keep coming back every year to find more tax rises and more spending cuts because you’ve got no growth.”

Read more: UK inflation: Food and energy bills to cost more than 50% of your pay

Elsewhere, the Office for National Statistics (ONS) revealed that the price of food staples such as pasta, tea, chips and cooking oil has soared over the past year.

The price of the cheapest vegetable oil was 65% higher in September compared with a year ago, while pasta rose 60%. Tea climbed 50% during the period.

It comes as UK inflation stands at a 40-year high, with prices up 10.1% in a year.

The data showed that orange juice, minced beef and rice were among the few items that have fallen in price over the past 12 months.

Watch: How does inflation affect interest rates?

Across the pond, the S&P 500 (^GSPC) rose 1.2% and the tech-heavy Nasdaq (^IXIC) surged 1.9% at the time of the European close. The Dow Jones (^DJI) edged 0.8% higher.

It came amid news of the sharpest slowdown in US house price growth on record. US house prices grew 13% in the 12 months to August, down from 15.6% in July.

This was the biggest drop in the index’s history, according to S&P. Economists had expected US house price growth to hit 14.4% during the period.

The US Federal Reserve’s sharp rate increases were to blame for the weak data, as hikes make mortgages more expensive.

George Ratiu, manager of economic research at Realtor.com, said: “As we move into the colder months of the year, we can expect further declines in home sales and continued downward adjustment in prices.”

Read more: Could Rishi Sunak make the UK a global crypto hub?

It followed a rally on Wall Street on Monday on hopes that the US Federal Reserve could be nearing the end of aggressive rate increases.

The US dollar eased against major peers, while sterling rose towards this month’s highs. Sterling strengthened 0.3% to $1.13170, heading closer to the high of $1.1493 from 5 October.

Hewson added: "The continued resilience in US treasury yields suggests that bond markets have their doubts about a pause and that the Fed will probably push its luck until something snaps.

"With Federal Reserve officials now officially in a quiet period in the lead-up to next week’s meeting, there is little prospect of any sort of pushback on this belief. Let’s hope that markets aren’t getting ahead of themselves and indulging in a spot of wishful thinking."

Meanwhile, Asian equities fell to a fresh two-and-a-half-year low overnight as early gains were offset by weakness in Chinese shares and the yuan.

In Tokyo, the Nikkei (^N225) climbed 1% while other key markets lagged. The Hang Seng (^HSI) fell 0.1% on the day in Hong Kong, while the Shanghai Composite (000001.SS) dipped 0.04%.

Watch: What are SPACs?