The British economy is in bad shape. Removing Boris Johnson could help

British Prime Minister Boris Johnson will face a vote of confidence triggered by lawmakers from his own party on Monday. They are irritated by the government parties that broke coronavirus rules, its handling of a deteriorating cost of living crisis and the lack of clear policy goals.
If 180 Conservative To party lawmakers – or a simple majority – vote against Johnson, he will cease to be leader of the ruling party and be removed from office, less than three years after winning a landslide victory in the general election. If Johnson wins the vote, he will remain party leader and prime minister, although his authority will be damaged.

Markets could initially be rocked if Johnson loses, given the instability and moves to replace him that would follow. But some analysts think it could ultimately be a positive development for the UK investments, as it would pave the way for someone with a bolder vision to take the reins as economic activity stagnates.

The world’s fifth-largest economy shut down in February and started to contract in March. The pound has plunged nearly 8% against the US dollar this year, losing even more than the euro.

“It really opens up the possibility of change,” said Jordan Rochester, currency analyst at Nomura, which specializes in the UK market. The current government, he added, “has no agenda other than ‘keeping Boris Johnson in power'”.

Britain’s bad luck

Countries around the world face enormous economic challenges, as the lingering effects of the pandemic, Russia’s invasion of Ukraine and soaring inflation dampen once-strong recoveries. But the United Kingdom is in a particularly wrong place.
The fallout from Brexit has led to crippling labor shortages and increased business operating costs, further exacerbating the price spike.
Inflation in the UK reached 7.8% in the 12 months to April, compared to 7.4% in the European Union over the same period. It is expected to peak above 10% later this year, a higher rate than in the United States.

Rising food and fuel prices have created the worst cost of living crisis in decades, forcing low-income households to choose between “heating and eating” which has become a rallying cry as activists are demanding more support from the government.

Johnson’s The government has said it will provide £400 ($502) in grants to help the millions of people struggling to pay their energy bills. He also bowed to pressure last month and unveiled a £5bn ($6.3bn) tax on the windfall profits of oil and gas companies.
But his premiership has been rocked by the ‘Partygate’ scandal, with months of party allegations and rallies at the heart of his government at different stages of the pandemic lockdown eroding confidence in his leadership. A damning report by senior civil servant Sue Gray published late last month revealed a culture of partying and socializing among Johnson staff as millions of Britons were banned from seeing friends and loved ones .

His style of governance has also animated criticism as the country’s economy stumbles.

“You’re just looking to campaign, keep changing the subject and create political and cultural divides primarily to your advantage, at a time when the economy is struggling, inflation is soaring and growth is at its best. anemic,” said Tory MP Jesse. Norman – a former Treasury minister – said in a letter on Monday explaining why Johnson had lost support.

A new prime minister?

The possibility of a new leader at 10 Downing Street is buzzing among investors as it could give the government a new direction.

The market initially delighted Johnson. His election in 2019, on the basis of his pledge to “get Brexit done”, paved the way forward following a long period of uncertainty following the 2016 vote to leave the European Union.

His victory sent the pound to $1.34. While battered by the pandemic, a strong rally in 2021 pushed it above $1.40 a year ago.

But the troubling downturn in the economy – coupled with the sharp rise in the US dollar – has caused problems since then. The currency fell below $1.26.

A new prime minister could unveil a big spending package to win support, usher in more sweeping reforms and reduce tension with the European Union over trade, Rochester said. This would be useful for the pound sterling.

“While uncertainty over who might lead the country could temporarily hurt market sentiment, the economy and markets would likely benefit if the UK were no longer led by an unpredictable populist,” Kallum said. Pickering, senior economist at Berenberg Bank, in a note to clients on Monday.

If Johnson wins, meanwhile, Britain can expect the same, according to Pickering.

“Johnson would continue to preside over a predominantly centrist, low-power agenda,” he said.

The margins of Monday’s vote will be important for Johnson’s political future. Former Prime Minister Theresa May resigned less than six months after surviving a vote of confidence in late 2018.
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