A British 5 pound sterling note. Sterling jumped more than 1 per cent to trade past $1.13 after Liz Truss announced she was stepping down as Prime Minister. Image Credit: Gulf News archives

Investors cheered after the pound surged after Liz Truss announced she was resigning, capping weeks of speculation that she would not be able to remain in her post as Britain's Prime Minister.

Sterling traded 1 per cent higher, after rallying by as much ahead of the announcement. Truss said that the UK leadership vote would be completed in a week.

The administration has already reversed most of Truss' vast unfunded tax-cut pledges, curbing volatility in the gilt market and helping the pound to recover to levels seen before she unveiled her mini-budget in September. Her resignation could help cool nerves further as investor await clarity on the projected size of the budget deficit.

The government is due to publish its medium-term economic plan and forecasts from the fiscal watchdog slated at the end of the month. Those figures will also influence the Bank of England's thinking when it sets rates next month.

"Short-term political uncertainty aside, it's positive for both the pound in the long run because this episode will remind every candidate in the future to not undermine the credibility of the government by making outlandish spending plans," said Rishi Mishra, an analyst at Futures First.

Focus is now turning on who might next be leader, with candidates likely to include former Chancellor of the Exchequer Rishi Sunak, who claimed during the leadership contest that his opponent's fiscal measures would push Britain's economy to the brink of collapse.