A month ago, Boris Johnson stood in front of the UK’s business leaders, asking them for their support, and talking about how much he valued wealth creation. But a month is a very long time in politics.
On Tuesday, the pound wiped out all the gains it made in the days following his election victory, after the prime minister signaled he’s determined to sever the UK’s relationship with the European Union — with or without a trade deal — by the end of 2020.
Traders who thought Johnson would use his considerable parliamentary majority to cut ties with the Brexit hard-liners in his party and deliver a soft divorce were “caught by surprise,” said Kit Juckes, chief foreign-exchange strategist at Societe Generale SA.
It was the currency’s biggest slump in a year.
Was the prime minister troubled? There wasn’t much sign of it later in the day, when an official said neither Johnson nor any other minister would attend next month’s meeting of the World Economic Forum in Davos, Switzerland. The official, speaking on condition of anonymity, explained that “our focus is on delivering for the people, not champagne with billionaires.”
That’s not an indication Johnson is taking up a monastic lifestyle: He celebrated last week’s election victory at a party hosted by media mogul Evgeny Lebedev.
Instead, it’s a sign that the prime minister suspects that the voters who won him the election still have their doubts about him — that, as he’s said several times, they were “lending” the Conservatives their votes. Having won a string of working class districts in northern England and the Midlands, Johnson is branding his administration as “the people’s government.”
On Wednesday he’ll set about trying to reassure them on a key area of Tory weakness: the much-loved National Health Service.
In an effort to deliver on his commitment to bring more staff into the system, Johnson will announce support grants for student nurses, and hold a reception for NHS workers.
That image might be undermined by the sight of him or his team brushing shoulders with the global elite at a Swiss ski resort. Even so, markets are less likely to be troubled by Johnson’s attempt to present himself as a man of the people, than by his Brexit strategy.
In a further warning that businesses will need to brace themselves for Brexit, Johnson’s spokesman, James Slack, told reporters that “in all circumstances we will be leaving the single market and the customs union and the EU regime associated with that.”
EU leaders have warned it’s highly unlikely that negotiators will be able to complete the kind of trade deal Johnson wants — which he’s modeled on Canada’s agreement with the EU — in the 11 months between Brexit day on Jan. 31 and the December deadline.
This sets up a fresh cliff-edge for a no-deal split at the end of 2020.
“It is fitting that the main culprit for the reversal is PM Johnson himself with his potentially ill-advised decision to block any chance of extending the transition period beyond December 2020,” Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA, said of the pound’s decline.
Johnson’s approach did win the backing of the Confederation of British industry, which said in a statement that “business has had enough of uncertainty and shares the prime minister’s ambition for a fast EU trade deal.” The City of London, however, warned against a hasty Brexit agreement that could damage services, a sector that accounts for 80% of the UK economy.
‘Orgies of adulation’
Conservatives argue that enshrining the December 2020 deadline into law will help focus European minds. And the Davos boycott fits the narrative that Johnson won’t be distracted.
He hasn’t always been against attending Davos. As London’s mayor, he went at least twice to urge attendees to invest in the UK capital.
“You just have to chuck a snowball into a cocktail party at Davos and you’d hit someone with a sovereign wealth fund who would fund a piece of infrastructure,” he told the Sunday Telegraph newspaper in 2013. In an interview with the BBC the same year, he described the gathering as “a great big constellation of egos involved in massive mutual orgies of adulation.”
But he was also photographed enjoying a pizza with then-Prime Minister David Cameron on the eve of the release of disappointing economic data — an experience that exposed the risks of attending.
Johnson’s predecessor, Theresa May, used Davos to promote Britain’s international face as it negotiated its withdrawal from the EU, while chancellors of the exchequer have been regulars at a lunch of British business leaders.
Domestic demands meant May didn’t go this year and nor did French President Emmanuel Macron — though both sent representatives. President Donald Trump canceled the US delegation’s trip this year hours after he announced he was denying House Speaker Nancy Pelosi a government plane to visit US troops in Afghanistan.
Rupert Harrison, an adviser to David Cameron’s government and now a portfolio manager at BlackRock Inc., said the decision not to attend is “ridiculous” because there’s no other forum where the case for inward investment can be made “more efficiently.”
“Are they campaigning or governing?” he asked in another tweet.
While Johnson was feted at Davos when he attended as mayor, it’s possible that as someone who’s now been accused of putting up trade barriers as a result of Brexit — he might be less welcome.
It’s even possible some attendees might remember Johnson’s 2014 assurance to the Wall Street Journal, while attending Davos, that the chances of Britain leaving the EU were “vanishingly unlikely.”