What are we talking about? Boris Johnson has resigned as Prime Minister after days of unrest and over 50 resignations from government. It’s a little bit of a relief, but we don’t think it has a particularly significant impact on financial markets or our portfolios. The chaos in Westminster couldn’t really continue given the tidal wave of ministerial resignations – almost before they had been appointed in some cases. Whether the absence of ministers would have damaged the process of government remains an open question, of course.
It’s a relief for a few reasons. First, there are serious issues to deal with – the cost of living, an impending recession, Northern Ireland, Ukraine etc. Having a government to focus on those problems would probably be a good thing. Second, while a resignation might have been the most likely outcome (with hindsight), there were other implausible and less palatable scenarios – could Johnson have threatened to call a General Election? Could the 1922 Committee have changed its rules, engineered his departure as party leader only to see Johnson refuse to accept the decision. Could two different Tory MPs have tried to fight their way into Buckingham Palace to speak to the Queen about forming a government? However ridiculous those might sound, it’s still something of a relief not to have to consider them.
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But it’s only a bit of a relief for a few reasons too. First, the serious issues – notably around growth and inflation – facing the country don’t change, no matter who is in charge, and the solutions aren’t obvious, at least in the short-term. Second, in a global financial context, who sits in 10 Downing Street usually doesn’t matter a huge amount – and we’d argue that’s the case at the moment. The currency might rally a bit, but we’d guess that its recent weakness has had more to do with global economics than UK politics. Third, once Johnson resigns, we’ll then spend some time watching the Tory party try to elect a successor – which will provide further distraction.
What might change things? If the government decided to call an early general election, that might make things more interesting – as much for uncertainties in the Labour party as for the Tories. But the term of the current parliament finishes in December 2024. There might be some electoral logic to calling an early election, but we’d guess the Tories will most likely find a successor and try to rebuild their credibility over the next two years.