The pound rose against the dollar and government borrowing costs fell as markets reacted to the resignation of Prime Minister Liz Truss.
Sterling hit $1.13 after Ms Truss made her announcement and rallied before falling to $1.12 in the afternoon.
One analyst said investors were “relieved” by the news even though a lot of uncertainty remained.
Business groups said the new prime minister would have to act quickly to restore confidence.
A fall in the value of the pound increases the cost of goods and services imported into the UK from abroad – because when the pound is weak against the dollar or the euro, for example, companies in the UK are less likely to buy such goods. It costs more. As food, raw materials or parts from abroad.
A weaker pound could push rising costs higher as well if companies choose to pass on higher prices to consumers. For people planning to travel abroad, changes in the pound affect how far money can go abroad.
While the pound fell to a record low against the dollar last month, government borrowing costs rose sharply after the government promised massive tax cuts in its mini-budget, without saying How will she pay them?
But spending returned after the Bank of England stepped in with an emergency bailout program, and almost all small budget measures were reversed after Jeremy Hunt became chancellor.
Mr Hunt is due to announce the spending and tax plans in his economic plan on October 31, which the Treasury has confirmed will go ahead, although there are reports it could be delayed by a Conservative leadership contest.
Paul Dales, Chief UK Economist at Capital Economics, said, “Although the resignation of Liz Truss as Prime Minister leaves the UK without a leader as it faces major economic, financial and financial market challenges, markets Looks like relief.”
“But more needs to be done and the new prime minister and her chancellor have a huge task to get the economy through the cost of living crisis, the cost of the borrowing crisis and the cost of the credit crisis.”
Simon French, chief economist at Panmore Gordon, said the market’s reaction had been “fairly muted”, with investors awaiting “details of what’s going to happen next”.
Ms Truss said her successor would be chosen in a Tory leadership contest, which will conclude next week. His resignation came after a key minister resigned and Tory MPs rebelled in a chaotic parliamentary vote on Wednesday.
Mr French said markets could be “more aggressive” if a clear favorite emerged for prime minister. “The sooner you get there, the more likely it is to help the winner do the hard work.”
Tony Denker, head of the CBI business lobby group, said: “The politics of recent weeks have undermined the confidence of people, businesses, markets and global investors in the UK.
“[The next prime minister] will need to deliver a credible fiscal plan for the medium term as soon as possible, and a plan for the long-term growth of our economy.”
