Strategy
UK's Boris Johnson Resigns – Reactions

As Boris Johnson steps down as UK prime minister, after a wave of government resignations, investment managers react on what this could mean for markets, fiscal policy and the economy as a whole.
In the aftermath of the news of Prime Minister Boris Johnson's
resignation, sterling yesterday rose by 0.5 per cent and the
FTSE 100 Index of blue-chips stocks also traded higher. But some
commentators see that this effect is likely to be
short-lived.
Johnson’s government had been facing controversy for months,
first about lockdown parties attended by political leaders and
officials in Downing Street and elsewhere during the pandemic,
and later about the government's handling of allegations of
abusive conduct by Conservative MPs. Johnson, a former
newspaper reporter and columnist, was accused of not being honest
and open in his statements about such matters to colleagues and
the media. As a result, a number of his colleagues, notably
finance minister Rishi Sunak and health secretary Sajid Javid,
resigned this week. The departure of a finance minister is often
the trigger for wider political trouble, as was the case when Sir
Geoffrey Howe quit the Margaret Thatcher administration in the
late 1980s over the issue of UK membership of the EEC, as the
European Union was then called.
Johnson's predicament is at first sight extraordinary, having
achieved an 80-seat majority in the December 2019 general
election, defeating the Labour Party under its hard-left leader,
Jeremy Corbyn, and then unblocking partliamentary obstacles to an
exit from the European Union.
In his resignation speech outside Downing Street yesterday,
Johnson highlighted, after his resignation, how it was the will
of the parliamentary Conservative party that there should be a
new leader of the party and therefore a new prime
minister. He plans to serve until a new leader is in
place; a timetable for the leadership race would be
announced next week – a process which could take at least six
weeks.
Here are reactions from wealth managers to the news:
Schroders: senior
European economist and strategist, Azad Zangana
“Boris Johnson’s resignation triggers a leadership contest for
the Conservative Party and premiership that is unlikely to be
settled before the autumn. This leaves a lengthy period of
uncertainty over the direction of the country and economy.”
“Johnson’s government often leaned toward populist policies,
and while he will always be remembered for Brexit, recent fiscal
policy also followed a similar approach. This may have boosted
growth in the near-term but also contributed to higher inflation,
and higher public borrowing. The recent decisions to increase
corporation taxes instead of personal or sales taxes is just one
example.”
“The resignation of Chancellor Rishi Sunak a couple of days ago
highlighted the disagreement between the Treasury and the Prime
Minister’s office. The suggestion was that voters were not being
given the full picture when it came to the state of the economy
and public finances.”
“In terms of the reaction in markets, news of the resignation
helped lift sterling against most other currencies, though the
moves have been relatively small.”
IG
Group: Chris Beauchamp, chief market
analyst
“The pound has been looking for any excuse to bounce against the
dollar following its drubbing lately. Boris’ decision to go
removes at least some of the uncertainty, and means that a snap
election is off the cards. Longer term, the outlook is still
bleak for the pound, so this bounce is unlikely to last.”
GAM
Investments: Charles Hepworth, investment
director
“The UK’s outgoing Prime Minister Boris Johnson finally conceded
his position is untenable, following the highest number of
ministerial resignations that the country has ever seen in such
short order. Things, as ever with Boris Johnson, are likely to
still take a few interesting turns before he exits Number
10.”
“The initial reaction in the pound and the markets was widely
euphoric at the prospect of an end to the political chaos
that has marked his time in office, but it is unlikely to be
sustained – the economic malaise that the UK finds itself in is
unlikely to reverse course anytime soon.”
“Boris could stay on as an interim leader until a new one is
decided, which would mean a few more months of clinging on to
power, albeit effectively neutered. Were that to happen,
Labour have already signaled they would push instantly for a vote
of no confidence in the Government which, should they win
(which is likely), would then drag the Queen in to appoint a
Prime Minister. Constitutional crises are not good optics from a
market perspective, but it is not surprising that Boris Johnson
has crashed out in a ball of flames. UK risk assets look
decidedly unattractive until this political circus has packed up
and moved on.”
Investec
In the interim period prior to a new Prime Minister being
installed, the outlook for economic policy naturally looks murky.
Until his resignation on Monday, Chancellor Rishi Sunak was
expected to give a joint speech on the economy with PM Johnson
next week. Press reports had, for a long time, suggested clashes
between Sunak’s more fiscally cautious stance and Johnson’s more
free-spending attitude. These were confirmed in the Chancellor’s
resignation letter.
Sunak’s departure paved the way for a more sympathetic attitude
to Johnson’s view by the next Chancellor, Nadhim Zahawi, promoted
into this role on Tuesday. Indeed, Zahawi indicated in press
interviews that the planned hike in the corporation tax rate from
19 per cent to 26 per cent in 2023/24 could potentially be
scrapped to maintain global competitiveness. He is said to have
been instructed to look into immediately cutting fuel duty and
perhaps also the standard rate of VAT as well as income tax
rates, along with lifting the tax thresholds with inflation, to
help address the rising cost of living. Similarly, he is reported
to oppose windfall taxes on oil and gas companies. At the same
time, though, he noted the need to be fiscally responsible to
rein in high and rising inflation, including by being ‘really
careful’ as regards public sector pay.
However, it is doubtful whether continuing this incipient
shift toward a looser fiscal policy will be possible under a
caretaker Prime Minister.
Should, however, the next leadership of the Conservative Party
agree with this directional shift, the response to looser fiscal
policy by the Bank of England may be to hike rates more
aggressively to counter the resulting upward pressure to
inflation that this would bring about. Much, however, will depend
on the nature of the incoming government. The same can be said
for other flagship economic policies with longer-term
ramifications, such as ‘leveling up’ and net zero.
A change at 10 Downing Street may help to douse Scottish appetite
for separatism. But all of course depends on exactly who becomes
PM and the precise makeup of the new cabinet and, for now, a
thick layer of political fog has descended upon the UK.
Federated
Hermes: Silvia Dall’Angelo, senior
economist
“Political uncertainty usually drags on economic performance on
its own – it weighs on sentiment, and it typically holds business
investment decisions back. However, it is a second-order issue
compared with the extreme economic challenges the country is
already facing. The UK economy only fully recouped its
Covid-related losses at the beginning of 2022, just when a new
stagflationary shock from the war in Ukraine hit. Persistently
high and rising cost-push inflation has eroded real incomes,
which will likely result in a sharp slowdown in consumption in
the second half of this year. Consumer confidence running at a
record low and emerging cracks in business confidence suggest
recession risks have increased for the coming quarters.”
“What’s more, policymakers can do little to address those
challenges in the short term. The Prime Minister’s resignation
makes additional fiscal easing unlikely, but options have always
been limited, despite Johnson’s urge to loosen the purse strings.
Fiscal space has been constrained following the increase in
public debt that pandemic-related stimulus brought about, and
further blanket fiscal easing – as opposed to targeted and
limited measures to support the most vulnerable households –
would stoke additional inflationary pressures. Meanwhile,
monetary policymakers also face a dilemma, as elevated realized
inflation risks become engrained against the backdrop of a tight
labor market. The Bank of England will likely continue to tighten
monetary policy, leaning against the risk of second-round
effects, but it will proceed carefully in light of the downside
risks to growth. At the margin, recent political developments
will make the Monetary Policy Committee somewhat more
cautious.”
eToro: Ben
Laidler, global markets strategist
“Investors have shrugged off the resignation of the British Prime
Minister in a snub to its importance to markets. Sterling has
strengthened today, the FTSE 100 is up, and the more domestic
focused FTSE 250 leads the way.
“Markets may welcome the step toward lesser political
uncertainty, with no general election due until January 2025, and
potential tax cuts in the meantime to support the weakening
economy.”
“It is another reminder that markets are not economies. Despite
the UK’s soaring inflation, slumping economic growth, and
political uncertainty, the FTSE 100 is the least worst performing
major global stock market this year. It is down only 4 per cent
versus the 20 per cent falls of the US S&P 500 and Germany’s
DAX, benefiting from its mix of cheap commodity and defensive
high dividend stocks.”