British markets are facing economic turmoil as the pound dropped to more than two-year lows against the dollar and political unrest as Prime Minister Borris Johnson faces more resignations. The traders and investors are waiting to see whether the new finance minister will increase the availability of money and whether the Prime Minister will survive this exodus of support.
Uk Markets Brace For Prolonged Political Uncertainty
There are high chances that Borris will leave by the end of 2022 because of his weakened authority. He lost his control of power after a series of scandals including accusations that he breached his own COVID-19 lockdown rules and because Rishi Sunak and Sajid Javid resigned from the finance minister and health secretary posts.
The good news in the UK market is that British stocks bounced a day after hefty losses.
The market is fluctuating, and analysts assume that the market is suffering because there is no clear direction. They do not know the possibilities of Borris Johnson handling the situation and the priorities of Nadhim Zahawi, the newly appointed finance minister.
After the appointment, people are having expectations from the new minister. Paul O’Connor, head of the UK-based Multi-Asset Team at Janus Henderson, said that the financial markets will evaluate the development in terms of economic policy. It is expected from the new minister that the chancellor will lean more toward fiscal generosity than his predecessor has.
He said, “The new chancellor is not going to be in a position to substantially alter the course of the UK economy.”
Paul showed his concerns that the minister will have to face huge challenges such as a slowing economy, consumer confidence, and decades-high inflation.
As we mentioned about Borris’s weakened authority, bookmakers have found out that 97% of people think Borris will leave by the end of 2022. Even though his team is working hard, people, especially the ministers who have resigned, think that he is not fit to govern.
Johnsons’s new team could reveal the spending measures to raise people in his favor. Still, his premiership remains in doubt. When asked about his resignation by the lawyer of his party, he denied that he would not step down. When asked if there are any circumstances under which he should resign, would he do that? His reply was that he would keep going no matter what.
Two important factors are driving the market’s indifference to political unrest in Britain. Stuart Cole at RBC took reference from the bookmaker’s data and said ” markets have now all but written off Johnson as PM going forward.” Secondly, no one in the picture can replace Boris Johnson, so it is hard to assume the impact of his departure on the policy.
The people in the market are expecting a bumpy road for the currency implying that the British pound hit two weeks high.
When measured on Monday against other different currencies by the BoE’s trade-weighted sterling index, the pound fell to its lowest since January last year.