British Prime Minister Boris Johnson issued a statement on July 7, 2022 at Downing Street in London, England.
Henry Nichols | Reuters
London — According to economists, the ultimate successor to British Prime Minister Boris Johnson could lead to greater financial support and a more difficult relationship with the European Union.
Johnson officially resigned as leader The Conservative leader on Thursday said he would stay in Downing Street until a successor was chosen. Immediately aside Allow less controversial “caretakers” Take over provisionally.
It is unclear exactly when new leaders will be appointed, but reports are aimed at confirming leaders before the Conservative Party Conference in October. By Monday morning, 11 applicants had raced to replace Johnson with Rishi Sunak, Penny Mordaunt, and Liz Truss favorites, according to a British bookmaker.
The expulsion of the Prime Minister coincides with a particularly dangerous time for the British economy.Inflation has hit a new blow Highest value in 40 years 9.1% In May, food and energy costs soared and the country’s living expenses were at stake.
Meanwhile, the economy Surprisingly shrunk in April To mark the first consecutive GDP contraction since the start of the Covid-19 pandemic — and the UK is widely tilted to experience a technological recession later this year.
The UK’s independent budget agency, the Budget Responsibility Department, predicts that real disposable income will decline 2.2% this fiscal year (2022/2023) as household spending continues to be squeezed, the largest since the record began. Is an annual decrease.
“In addition, uncertainty about the duration and outcome of the conflict in Ukraine can adversely affect investment and export performance by having a secondary impact on the growth outlook of the EU, the UK’s major trading partner. It can have a negative impact on the situation, “said senior Borisgrass. UK Economist with S & P Global Ratings.
“Given the inflationary pressures mentioned above, Bank of EnglandDue to the BOE’s monetary tightening and the endless conflict between Russia and Ukraine, the UK’s growth rate in 2023 is projected to be the lowest of the G7 countries at 1%. “
Former Finance Minister Rishi Sunak, That resignation One of the two that caused the final end of Johnson’s tenure, he announced a series of steps over the past six months as an effort to combat the cost of living crisis. Storm tax on oil and gas majors And one-time payments to 8 million low-income households.
However, economists are broadly hoping that either candidate will take the reins from Johnson and signal financial support for the sick economy.
Modupe Adegbembo, G7 Economist AXA The investment manager said the key question was whether Mr Johnson would use his “caretaker” period as prime minister.
“But with the appointment of a new prime minister, the chances of additional fiscal spending and tax cuts increase,” Adeg Benbo said in a Thursday memo.
“The possibility of accelerating the income tax cuts implemented in 2024 remains challenging in the light of fiscal development, but may emerge from some candidates.”
Her comment was echoed by the strategist UBSThe change in leadership said that the new prime minister would “want to prove himself” and would allow more financial support.
UBS CIO Mark Hefere’s team said, “Additional support for the UK economy will be at the right time. March GDP growth is –0.1% compared to February – April. Was –0.3% compared to March. ” Friday.
“Further raising of the energy price cap means more pressure in the future, but our basic case is that the UK barely avoids a recession, FTSE 100 It generates only 25% of its revenue in the UK. “
As a result, UK large caps are not particularly sensitive to domestic economic growth and benefit from the weaker pound. Many FTSE 100 companies are profiting on the dollar and will be strengthened as the pound weakens against the greenback.
Asset manager Invesco’s strategist agreed, stressing that as long as Sterling remains weak, investors may have the opportunity to “double discount on high-quality international companies.”
Sterling It rose slightly after Johnson’s resignation, but returned on Friday with those and subsequent rises as global pressure continued to weigh on the pound. The FTSE 100 is largely unaffected by political turmoil and tracks the interests of Europe as a whole.
UBS is also favored by Swiss banks, with high exposure to both commodity-linked and “value” sectors (usually stocks traded at discounted prices to fundamentals) supporting the recent UK market. He said it has become one of the stock markets.
“The immediate outlook is likely to depend on Johnson’s ability to continue for the next two months, in which case the market is at risk of further volatility over the summer,” said Adegbembo of AXA IM. ..
“But if Johnson is replaced by another’caretaker’, the outlook for domestic policymaking will be diminished and the expected volatility will be diminished. “
No clear front runner has emerged to take over the leader of the Conservative Party, and the field is likely to be crowded and diverse. But even if the new Prime Minister moves to Downing Street, approving a financial package to help consumers is not a natural conclusion.
Invesco suggested that this uncertainty means that the UK economy will continue to “decline” tentatively and is most likely to experience a recession this year among developed economies.
In addition to supply chain problems and global pressure on the war in Ukraine, the UK is also dealing with trade and economic collapse from Brexit.
“It’s hard to make the UK economy more constructive right now,” said Invesco’s strategist. “Not only is the economic fundamentals weakening, but there is also a serious risk of policy mistakes.”
“Given the current pressure, we believe it is even more difficult for the government to unify a clear strategy for the future.”
The Johnson administration was elected in 2019 with a promise to “achieve Britain’s exit from the EU,” and despite promoting an “oven-ready” exit agreement with the European Union, Northern Ireland’s main belief. We continue to dispute the operation of the Irish Protocol. Withdrawal agreement signed by both parties.
S & P Global’s Glass suggested that the new government might try to repair relations with the EU by taking a more reconciling approach to trade relations, but given the broader views within the Conservative Party, This result is not guaranteed.
“Judging from the initial lineup of potential successors to Johnson, the balance of potential outcomes will lean towards a less tense relationship with the EU,” said Karm Pickering, senior economist at Berenberg.
“Even the avid Brexitea candidates (Penny Mordaunt and Liz Truss) are less populist than Johnson.”
What Causes Long-Term Optimism?
Over time, weakening relations with the EU catalyzed stronger business investment, a sustainable path for the pound sterling to reach a fair value of 1.40-1.45 against the dollar and 1.20-1.25 against the euro. Pickering suggested that it may provide.
“Looking further out, the sudden elections at the Conservative leaders’ elections and the subsequent honeymoon stages are not unthinkable in late 2022 or early 2023. Johnson and May Both took Britain to vote shortly after becoming Conservative leaders. “
However, Glass argued that beyond immediate political change, Britain continues to benefit from “strong institutional settings and credible monetary policy.”
The Bank of England has begun raising interest rates to curb inflation, and S & P Global believes consumer prices will be gradually curtailed by mid-2024.
“Furthermore, despite the weakening macroeconomic outlook, public finances are generally stable and net general government debt is projected to decline from 96% at the end of 2021 to 94% of GDP by 2025. “Glass said.