The blue-chip FTSE 100 rose 0.6%, while the domestically focussed FTSE 250 index jumped 1.3%. Both the indexes were muted in morning trade on worries about political uncertainty and growing recession risks in Europe.
The pound, however, slipped 0.2%.
“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 yields have come down, which just demonstrates that the markets feel that once again the UK is getting back to the kind of economy that they would expect from an established economy rather than an emerging economy.”
Sunak becomes Britain’s third prime minister in less than two months.
He 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.
Still, the FTSE 100 is set to end the month higher as a historic reversal of the tax plans and hopes that Sunak could win power instilled some confidence.
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 and HSBC dropped 8.8% and 1.8%, respectively, 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 climbed 8.3% 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.