Rishi Sunak looked set to become Britain's next prime minister after Boris Johnson withdrew from the contest on Sunday, saying that he had enough support to make the final ballot but the country and Conservative Party needed unity.
It leaves the election to replace Liz Truss as potentially a straight fight between Mr Sunak, the former chancellor, and Penny Mordaunt, the Leader of the House.
It could all be over a little after 2pm on Monday if Ms Mordaunt — who so far has fewer than 30 public declarations of support from MPs — fails to gain enough nominations to go ahead.
According to the rules of the accelerated contest, if only one candidate secures the backing of 100 Conservative politicians, they will be named prime minister.
Shares jumped in London in early trading on Monday following Mr Johnson's decision to bow out of the race.
The FTSE 100 started the day with a 0.5 per cent rise, pushing it above the 7,000-point mark for the first time in a week.
And the pound continued a multi-day rise, building from its low of below $1.11 at about midday on Friday to reach close to $1.14 as stock markets opened after the weekend.
Meanwhile the gilt market cooled, making it cheaper for the government to borrow money. The interest rate on a 30-year UK Treasury gilt fell by nearly 0.2 percentage points to about 3.9 per cent.
If two candidates pass the threshold, they will go to a vote of the party membership, with the winner announced on Friday.
That is three days before chancellor Jeremy Hunt is due to detail the state of the country's finances on October 31.
Writing in a column for The Telegraph late on Sunday, Mr Hunt said Mr Sunak would “turn the page on what went wrong, take decisions in the national interest and rebuild the extraordinary potential of our economy”.
There were concerns that Mr Johnson would return to Downing Street with the backing of the party members, and not a majority of politicians in parliament.
Mr Sunak used Twitter to share his opinions on Mr Johnson ruling himself out of the leadership race.
“Boris Johnson delivered Brexit and the great vaccine roll-out,” he said.
“He led our country through some of the toughest challenges we have ever faced, and then took on Putin and his barbaric war in Ukraine. We will always be grateful to him for that.
“Although he has decided not to run for PM again, I truly hope he continues to contribute to public life at home and abroad.”
The BBC says Mr Sunak has the backing of almost 150 MPs so far.
One Sunak supporter said his main reaction was relief because if Mr Johnson had won, the “party would have torn itself apart”.
Another Conservative member, Lucy Allan, said on Twitter: “I backed Boris for PM but I think he has done the right thing for the country.”
A source from the Mordaunt campaign confirmed that she was still in the race.
“Penny is the unifying candidate who is most likely to keep the wings of the Conservative Party together and polling shows that she is the most likely candidate to hold on to the seats the Conservative Party gained in 2019,” the source said.
Earlier, allies of Ms Mordaunt disclosed that Mr Johnson had urged her to stand aside and back his campaign, which she refused to do.
Her supporters will be hoping that the departure of Mr Johnson will open up the contest, enabling her to make it on to the final ballot paper.
Writing on Twitter early on Monday, Ms Mordaunt said Mr Johnson had put the “party before self” by dropping out of the race.
“In taking this difficult decision last night @BorisJohnson has put country before party, and party before self. He worked to secure the mandate and the majority we now enjoy. We should put it to good use, and I know he will work with us to do so,” she tweeted.
Speaking on Sky News on Monday morning, home secretary Grant Shapps, who is supporting Mr Sunak, said Mr Johnson was "sensible" to abandon his bid, adding that it was "a bit too early" for him to return while a parliamentary investigation was ongoing.
He said it was up to Ms Mordaunt and her supporters whether she should now also bow out.
"Rishi enjoys the support of a large number of consevative MPs and there is a very high nomination threshold of 100, so putting it the other way round, Rishi doesn't think it's in the bag," he said.
"He's speaking to colleagues this morning. He's working very hard to attract those supporters who were perhaps with Boris Johnson previously.
"Let's see what happens. But we won't have to wait very long because by this lunchtime, I think specifically 2pm, we will know the answer."
Mr Sunak, 42, a former finance minister, confirmed on Sunday that he would enter the ballot.
He made his announcement on Twitter, declaring that the UK was “a great country but we face a profound economic crisis”.
“That’s why I am standing to be leader of the Conservative Party and your next prime minister,” he said.
“I want to fix our economy, unite our party and deliver for our country.”
Mr Sunak sought to use his experience as chancellor during the Covid-19 pandemic as the platform for his bid.
“I served as your chancellor, helping to steer our economy through the toughest of times,” he said.
“The challenges we face now are even greater. But the opportunities, if we make the right choice, are phenomenal.
“I have the track record of delivery, a clear plan to fix the biggest problems we face and I will deliver on the promise of the 2019 manifesto.
“There will be integrity, professionalism and accountability at every level of the government I lead and I will work day in and day out to get the job done.
“I am asking you for the opportunity to help fix our problems. To lead our party and country forwards towards the next general election, confident in our record, firm in our convictions and ready to lead again.”
Rishi Sunak through the years - in pictures
Suella Braverman, whose resignation as home secretary last week helped to bring on the contest to replace Ms Truss as party chief and prime minister, endorsed Mr Sunak.
“We, as a party, need to change,” Ms Braverman wrote in The Telegraph. “We need to provide leadership, stability and confidence to the British people.”
One prominent Cabinet supporter of Mr Johnson — Chancellor of the Duchy of Lancaster Nadhim Zahawi — said he was now backing Mr Sunak.
“A day is a long time in politics … Given today’s news, it’s clear that we should turn to Rishi Sunak to become our next prime minister,” Mr Zahawi tweeted.
“Rishi is immensely talented, will command a strong majority in the parliamentary Conservative Party, and will have my full support and loyalty.”
The withdrawal of Mr Johnson does not mean the end of the divisions in the party.
A significant section, including many activists, loathe Mr Sunak for his role in bringing down Mr Johnson last summer, meaning Ms Mordaunt could still win if the contest does go to a final ballot.
There is also likely to be anger among members if they are denied a say if, for whatever reason, there is no poll of activists.
Whoever wins will face the task of trying to bring unity to a party that has been through months of upheaval and public infighting.
Ms Truss took office after a leadership battle with Mr Sunak that descended at times into public slanging matches, and which was sparked by the departure of Mr Johnson as premier after scandals.
Economic challenges have combined with inflation at four-decade highs and a widening cost-of-living crisis as people face rising energy bills.
Investors are likely to sell the pound and gilts if Ms Mordaunt wins, while a Sunak victory would probably support UK assets for a while because he is regarded as having a better understanding of what the country needs to balance the books.