London: The end of Boris Johnson’s run as prime minister may ease the sense of political chaos, but it won’t fix any of issues depressing UK markets.
That’s the view from investors and market strategists, who said they’re still bearish on British assets as Johnson announced he will step down. The market reaction was positive, with the pound approaching $1.20. The FTSE 100 Index gained alongside other global stock indexes.
But traders put little faith in the rally. Sterling is already down 11 per cent this year and is increasingly at the mercy of global risk sentiment. Investors are more preoccupied with the direction of policy at the Bank of England, rather than whoever resides in Downing Street. And even then, Governor Andrew Bailey and his fellow rate setters say they can only do so much in the face of supply disruption and soaring energy costs.
“I don’t believe this resignation will have a big impact on markets,” said Micheal Keusch, a fund manager at Bellevue Asset Management. “It certainly brings incremental uncertainty, but in the grand scheme of things, with all the real big uncertainties around, I don’t think this will be moving the needle much.”
It’s a far cry from when the pound swung on UK political news during the Brexit negotiations. Even in the early months of Johnson’s term, the pound rallied when he replaced his chancellor. But that was before the pandemic and war in Ukraine engulfed markets. With inflation at its highest in four decades, who replaces Johnson as Conservative leader isn’t going to be enough to change the pound’s course on its own.
Another factor weighing on the pound is that the BOE is expected to move slower than the Federal Reserve in tightening policy. For currency traders, that interest-rate gap makes sterling less appealing.
“There is a cacophony of problems on the next Prime Minister’s plate, not least the cost-of-living crisis causing voters so much financial pain,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
