Sunak deserves a big pay rise

Unlike his predecessor Liz Truss, the new British Prime Minister Rishi Sunak has no spectacular plans to tackle the economic malaise and high inflation. But with that wait-and-see attitude, he has already earned back his generous salary twice over.

When Rishi Sunak campaigned for the premiership this summer, the talks were often about money. With an estimated fortune of £730 million, Sunak is even richer than King Charles, who sworn him in at the beginning of this week. Before entering politics, Sunak worked as an analyst at investment bank Goldman Sachs and was a partner at several highly profitable hedge funds. Although he was a multimillionaire before his thirties, the vast majority of his wealth comes from his wife. Akshata Murty's stake in the IT company Infosys, founded by her father, is worth hundreds of millions of pounds. Viewed from that perspective, his current salary is just a starvation wage.

Starvation wage or top salary?
The annual salary for a British Prime Minister is £164.080. On top of that is an amount of up to £115.000 as compensation for the costs he incurs for his public appearances. Together that is £279.080, or more than €320.000. For such compensation, you would expect Sunak to explain in a glowing speech immediately after taking office what course he is going to take. All the more so because during his fight for the premiership against Truss, he had every opportunity to delve into the problems facing the United Kingdom. It seems that the country has entered a deep recession, while inflation has risen to more than 13%.

2 billion pounds in 81 seconds
Instead, in a short, somber speech, he said that the country is facing a very difficult time. During the 81 seconds that the speech lasted, he also did not disclose a clear plan of action. That felt like a turn off. But financially, Sunak's premiership is off to a flying start. On the capital market, the yield on British ten-year government bonds has fallen from over 4% to less than 3,6%. That may not seem like much. But that picture changes when you consider that the country will have to borrow about £500 billion over the next two years to refinance maturing government bonds and close the budget deficit. Without that small interest rate differential, the UK could potentially lose £2 billion more annually in interest charges.

Pound in calmer waters
The benefit also echoes directly in the economy. The mortgage rates are linked to the capital market interest rate. Every pound that Brits don't lose on mortgage interest next year, they can spend on other things. Unlike Truss, Sunak exudes calm and predictability. These are two things that are highly valued in financial markets. As long as he takes a step-by-step approach and doesn't launch expensive, pompous plans to deal with the problems, interest rates may fall further. Meanwhile, the British pound has calmed down on foreign exchange markets, after a sharp fall in August followed by a solid recovery. Although Sunak's regime has not yet distinguished itself by decisive words or deeds, he clearly deserves the benefit of the doubt according to the financial and currency world.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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