Expect Boris Johnson, the person most likely to be the next UK Prime Minister, to drive down the pound even further should he win the leadership contest.
Image source: Getty/Gallo
The former London mayor is the odds-on favourite to win the Conservative Party leadership contest, securing the support of more than 40 Conservative MPs, putting him far ahead of his rivals.The pound will be delivered another bloody nose should Boris Johnson, the current frontrunner, win the race to be Tory leader and UK prime minister, says Nigel Green, the CEO of deVere Group.
“Further downward pressure will hit sterling in this scenario due to the increased likelihood that the UK would be taken into a no-deal Brexit by Mr Johnson. He will be further emboldened in his no-deal Brexit approach should Nigel Farage’s Brexit party win its first parliamentary seat in the Peterborough by-election on Thursday evening," he says.
Johnson told a conference in Interlaken, Switzerland: “We will leave the EU on 31 October, deal or no deal.” He intimated he could try to renegotiate a better deal with the EU before pushing ahead with a no-deal Brexit if necessary.
Green notes that Brexit aside, a Johnson victory would almost certainly increase sterling volatility. "He is known for his erratic style and has a long history of gaffes and controversies – including his infamous ‘f**k business’ comment. If he takes the UK’s top job, his unscripted comments may result in sharp moves in the pound.
“During the past two years, the pound has been battered when it comes to its price against other currencies. The significant drop in the value of the pound has contributed to reducing people’s purchasing power and a drop in UK living standards. Weaker sterling means imports are more expensive, with rising prices being passed on to consumers.
“The fall in the pound is good for exports some claim, but it must be remembered that around 50% of UK exports rely on imported components. These will become more expensive as the pound falls in value.
“A low pound is, of course, bad news for British holidaymakers and travellers abroad - with trips to Europe and the U.S. increasingly expensive. Even destinations such as Dubai and China are more expensive as their currencies are pegged to the US dollar.
“Arguably, the key issue for the UK, however, is that one of its biggest and most important sectors, financial services, will suffer from another knock to the pound. It will be hit because it is built on foreign investment that puts its faith in a strong pound," he says.
Financial services contribute 6.5% towards British GDP and is part of an overall service sector that forms 80% of the country’s economic output. "A weak pound has become the ‘new normal’ over the last three years since the referendum. But should Boris Johnson walk through that famous black door at Downing Street as PM, the pound can be expected to fall further still," Green says.
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