A wax figure of Prime Minister Boris Johnson (Peter Byrne/PA)
(Picture: PA Wire)London’s business and financial leaders pleaded for a period of “serious, stable government” to put the economy on an even keel following the resignation of Boris Johnson.
They warned that an extended handover period into the Autumn risked an economic policy “vacuum” that would make it harder to avoid a major downturn later in the year.
The pound bounbced more than half a cent against the dollar today as relieved investors sensed that the worst of an extraordinary period of political turmoil could now be over.
However, these were also concerns that the “relief rally” could soon fizzle out as the harsh reality of soaring energy costs, double digit infaltion and failing consumer confidience kicks in.
Richard Burge, chief executive of the London Chamber of Commerce and Industry said: “London’s business community, and indeed the whole of the UK’s economy, faces the most challenging operating environment for decades. What the country needs now more than ever is serious, stable government that is driven by the values that have traditionally made Britain a successful and globally admired country.
“ Recently, our politics and too much of our policy has put British business at a tremendous disadvantage. For our economy to thrive, we need to see leadership that is committed to delivering economic growth and balanced prosperity.
LCCI hope that a new government will recognise the challenges facing British business and focus on creating a better environment for growth. In particular, a government that moves away from higher corporate tax, reverses the decision to put up National Insurance and encourages investment in skills for the future.”
Andrew Goodwin, chief UK economist at forecasters Oxford Economics, said a protracted leadership election lasting until September “would leave a policy vacuum at a time when the economy is stagnating and the cost-of-living crisis is intensifying. It’s unlikely now that the Budget will be presented until late-November or even early-December, so the chances of further fiscal measures to support households and the economy that take effect this year are low. This will increase the focus on the BoE and may reduce the chances of faster rate hikes.”
Chris Beauchamp, chief market analyst at trading platform IG Group, said: “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.”
But Tim Graf, head of EMEA macro strategy at US investment house State Street, said:“Boris Johnson’s resignation does little to change the macroeconomic reality for the UK or the market reality for the pound, where the toxic mix of rising household costs, particularly domestic energy costs, and slowing growth look likely to test any future leader.
“Sterling could be better supported in the coming days with the removal of near-term political uncertainty, but I would see rallies as opportunities to sell given the prevailing economic malaise.
“Slowing growth should also be a pretext for the Bank of England to slow plans to raise interest rates, further weighing on the pound. However, UK assets might not fare too badly. A less proactive MPC could leave gilts more attractive as a consequence. And UK equities, particularly large-cap multinationals, should be able to continue their better relative performance given we expect the weakness of sterling to extend.”
