AXA IM: Boris Johnson tritt als Parteichef der Konservativen Partei zurück

Lesen Sie den aktuellen Kommentar in englischer Sprache von Modupe Adigbembo, G7 Economist bei AXA Investment Managers zum Rücktritt von Boris Johnson als Vorsitzender der Konservativen Partei. AXA Investment Managers | 11.07.2022 10:00 Uhr
© Photo by A Perry on Unsplash
© Photo by A Perry on Unsplash
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  • UK Prime Minister Boris Johnson announced his resignation as leader of the Conservative party today, he plans to stay on as a caretaker PM until a new party leader is elected.
  • The PM’s resignation comes after more than 50 Members of Parliaments (MPs) resigned from government or Conservative party roles protesting his leadership since Tuesday.
  • A Conservative leadership election will begin in the coming days and a new PM is expected to be in place by the Conservative Party conference in October. For now, there is still uncertainty over who will run the country until that point.
  • We run through the next steps including the upcoming Conservative leadership elections and initial implications for fiscal policy and the economy more widely.

Prime Minister Johnson announced his resignation as the leader of the Conservative party and plans to step down as Prime Minister (PM) when a new leader is elected by the party. Despite his attempts to remain in post through the political crisis, mass resignations from his government forced his resignation. The previous question over Boris Johnson’s future as Conservative party leader now gives way to further uncertainty over who will take the reins of the party. We consider the economic impacts of the continuing political developments and future Conservative party leadership contest. 

Boris Johnson has announced his resignation as leader of the Conservative party and has indicated he will step down as PM following the election of a new leader of the party – likely in the Autumn. This follows the resignation of over 50 MPs holding various Government and Conservative party roles. His resignation comes just one month after the vote of no confidence in which 41% of his parliamentary party voted that they had no confidence in him. Despite narrowly winning the vote, this was much less of an endorsement than had led to exits by previous Conservative PMs Margaret Thatcher and Theresa May. The PM emerged wounded and despite his desire to continue in post into the “mid-2030s” his position became untenable as allegations against his deputy Chief Whip emerged and Johnson’s prior knowledge of wrongdoing after initial denials was brought to light, once again questioning his own integrity. Johnson had seemed determined to ride out the storm of mass resignations, but with even his newly appointed Chancellor, Nadhim Zahawi, calling publicly for him to step down and Education Secretary Michelle Donelan resigning, both within 36 hours of taking roles, Johnson announced his resignation.

Johnson plans to stay on a caretaker PM until a new leader is selected, but opposition remains against his position within the Conservative party and uncertainty around his position as caretaker PM remains.  In normal circumstances, with Parliament about to enter the summer recess, this would not normally be a busy period for government. However, with an ongoing war in Ukraine and a cost-of-living crisis there are a number of potential issues that could arise and could require action from the government. With Johnson staying in post as caretaker PM, we see some risk of attempts to push through further domestic policies. However, resistance to Johnson staying on is likely to remain high. Many Conservative MPs suggest he should go immediately. Labour leader Sir Keir Starmer has threatened a vote of no confidence in the government, something that could result in a General Election, if he stays on. This creates significant uncertainty as to who will actually be running the country and what they might do, albeit likely only until September. As such, political developments over the coming days and weeks will still have the ability to surprise markets.

Leadership election to come 

The PM’s resignation will now trigger a Conservative Party leadership election. The current system of electing the Leader of the Conservative Party consists of two stages. Following the nomination of candidates, shortlisting sees successive votes of Conservative MPs held to whittle down the long list to two candidates. Following this, the Conservative party membership vote on a ‘one member one vote’ basis for their preferred candidate. 

The exact timetable will be set by the 1922 Committee next week. Initial reports had suggested that the leadership race will take place this summer and a new Prime Minister will be in place in time for the Conservative Party conference in October. The first stage of the 2019 leadership contest took two weeks, starting on 7 June and finishing on 20 June 2019. Stage two took a month, with the new leader announced on 23 July 2019. There is now some question as to whether this process could be accelerated to expedite Johnson’s removal from office.

Up until the last few months, previous Chancellor Sunak had been seen as a clear favourite to take over from Johnson. He remains slightly ahead as the bookmaker’s favourite to take over as next leader of the Conservative party. Trade Minister Penny Mourdant, Defence Secretary Ben Wallace and ex-Health Secretary Sajid Javid are also seen as potential candidates. Foreign Secretary Liz Truss remains popular among grassroots Conservative supporters, consistently topping rankings compiled by ConservativeHome. 

Economic and financial market implications

In the short-term, we see two key questions. Firstly, whether Boris Johnson remains Prime Minister during this ‘caretaker’ phase and secondly, whether he uses the time left in office to push through fiscal policies.  Amidst the political turmoil the UK remains in challenging economic circumstances with the country in the midst of a cost-of-living crisis and facing a crucial period without clear leadership. We may see Johnson focus on additional short-term policy during a caretaker government period. As such, we cannot take the potential of immediate additional fiscal relief, including the VAT rate cut widely considered off the table. 

However, when a new Prime Minister is appointed, we see an increased likelihood of additional fiscal spending and/or tax cuts. The potential to accelerate income tax cuts penciled in for 2024 may be floated by some candidates, although remains challenging in the light of public finance developments. However, we see the potential for additional energy relief and or adjustments to VAT as more likely short-term acts.

We could also see a tangible shift in the government’s approach to Brexit – with the Northern Ireland protocol bill now likely to face more delays and most candidates likely supporting a more constructive approach - notably excluding Liz Truss. Moreover, the change of Prime Minister raises the possibility of increased manoeuvrability on the European Union (EU) side. The EU had clearly lost trust in Johnson’s government and a new Prime Minister will have an opportunity to repair damaged relations, which may allow a greater flexibility of solutions. 

Financial markets reacted to today’s announcement.  Sterling rose against the dollar (0.3 percent) and the euro (0.4 percent) following the announcement of Johnson’s resignation, reflecting an easing in some of the longer-term political uncertainty. Gilt yields also rose with two-year yields up six bps to 1.81 percent and ten-year yields up two bps to 2.13 percent, but both having been higher before Johnson’s decision to stay on. Equity markets also rose – the FTSE 100 was in fact broadly unchanged on the news – but the more domestically-focused FTSE 250 rose 0.3 percent on the announcement and has broadly held that gain. The immediate outlook is likely to hinge on whether Johnson manages to stay on for the next two months – in which case markets risk a period of additional volatility going into the summer. However, if Johnson were replaced by another ‘caretaker’, the prospect of domestic policymaking would fall, something which should reduce any expected volatility.

Modupe Adigbembo, G7 Economist bei AXA Investment Managers

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