Snapshot

Johnson resignation will leave UK economy facing uncertain period


Boris Johnson’s resignation will trigger a leadership contest for the Conservative Party and premiership that is unlikely to be settled before the autumn, leaving a lengthy period of uncertainty over the direction of the country and economy.

Azad Zangana, Schroders’ Senior European Economist, said:

Johnson’s government often leaned towards 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 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.

Looking ahead, the outlook hinges on who Johnson’s replacement might be. A return to traditional Conservative politics will probably bring about some austerity over the next few years, but also a return to business friendly policies. However, another populist politician could lead to more of the same approach for the economy.

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.

Caspar Rock, Cazenove Capital’s Chief Investment Officer, added:

Sterling is at its lowest level since the Brexit referendum in 2016 and could remain under pressure while there is so much uncertainty. Over the medium term, the currency might start to recover if the next prime minister is more fiscally conservative than Johnson and adopts a more flexible approach to the interpretation of Brexit.

The weakness in GBP has helped the performance of our portfolios in a difficult period for markets. We will continue to carefully monitor and manage currency exposure.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

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