Great Britain waits for the new prime minister. How can the choice affect the pound?

22.07.2019 14:47|Conotoxia Ltd Analyst Team

The race for the next leader of the Conservative Party and the prime minister of Great Britain, which has been going on for many weeks, is coming to an end. The whole race went quite calmly and without major twists. The leader from the beginning was one – Boris Johnson.

Boris Johnson, former mayor of London and foreign minister, one of the main supporters of brexit from the very beginning, has a very good chance to become prime minister of Great Britain and move the country out of the European Union. Johnson remains favoured in polls over current foreign secretary Jeremy Hunt. The new prime minister will have to do what Theresa May did not do, that is, according to the will of the nation, leave the UE on the best possible terms. Although, according to Boris Johnson, he is ready even for brexit without a deal, so that only the United Kingdom will leave the European Union by the end of October.

160,000 members of the Conservative Party will vote on who will become the leader of the party. The vote is to end today and the results are expected on Tuesday, 23 July. The next day, on Wednesday, Theresa May is to resign and hand over power to his successor. Here, however, the situation can get a little complicated. Well, the party leader and the prime minister are two different things. The prime minister should have the support of the majority of the parliament, and the Conservative Party itself does not have the majority. Moreover, some Party politicians are ready to resign if Boris Johnson becomes Prime Minister. Among them is Philip Hammond, Chancellor of the Exchequer, and other ministers may follow in his footsteps.

So if Boris Johnson is not sure whether he has the support of the majority in the House of Commons, there may be a motion of no confidence. If such a motion is passed, early parliamentary elections will be necessary. Then the situation for the British pound and the whole brexit could be even more complicated. It seems that in the week in which key data from the British economy will not be published, the pound may remain under pressure due to lack of political stability and further uncertainty about brexit.

In addition, today the National Institute for Economic and Social Research (NIESR) reported that the risk of growth is still tilted to the downside, while recent economic data suggested that the UK economy contracted in the second quarter and would most likely shrink in the third quarter, which would be the first recession in the UK since the global financial crisis. In addition, NIESR lowered its growth forecasts for 2019 and 2020 to 1.2 percent and 1.1 percent compared to 1.4 and 1.6 percent previously. The experts also believes that the pound sterling may fall by 10 percent in the case of brexit without a deal.

 

Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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