Markets took the result in their stride. But some analysts believe a change could ultimately be a positive development for UK investments, since it would clear the way for someone with a bolder vision to take the reins as economic activity stalls.
The world’s fifth-biggest economy ground to a halt in February and started shrinking in March. Retail sales fell in May for the second consecutive month. The British pound has plunged almost 8% against the US dollar this year, losing even more than the euro.
“[The rebellion] really does open up the possibility of change,” said Jordan Rochester, a currency analyst at Nomura who specializes in the UK market. The current government, he added, “is lacking an agenda, apart from ‘keep Boris Johnson in power.'”
Britain’s bad run
The rise in food and fuel prices has created the worst cost-of-living crisis in the decades, forcing lower-income households to choose between “heating and eating,” which has become a rallying cry as campaigners demand more government support.
His style of governance has also animated critics as the country’s economy stumbles.
“You are simply seeking to campaign, to keep changing the subject and to create political and cultural dividing lines mainly for your advantage, at a time when the economy is struggling, inflation is soaring and growth is anemic at best,” Conservative Party lawmaker Jesse Norman — a former Treasury minister — said in a letter Monday explaining why Johnson had lost his support.
A new prime minister eventually?
The possibility of a new leader in No. 10 Downing Street generated buzz among investors, since it could give the government a new direction.
His victory sent the pound to $1.34. While it was battered by the pandemic, a strong recovery in 2021 pushed it above $1.40 a year ago.
A new prime minister could unveil a big spending package to win support, usher in more dramatic reforms and dial down brinkmanship with the European Union over trade, Rochester said. That would be helpful for sterling.
“While the uncertainty of who could run the country may temporarily hurt market sentiment, the economy and markets would likely benefit if the UK is no longer led by an unpredictable populist,” Kallum Pickering, senior economist at Berenberg Bank, said in a note to clients on Monday.
For now, however, the United Kingdom can expect more of the same.
Johnson will “continue to preside over a low wattage mostly-centrist agenda,” according to Pickering.