Boris Johnson’s resignation further complicates geopolitical uncertainties

Global Perspective

July 7, 2022

Executive summary

Boris Johnson’s resignation as the Prime Minister of the U.K. further complicates European politics and adds to the general lack of leadership in the continent. Markets had been anticipating such an outcome and had priced in the uncertainty beforehand; therefore, no further reverberations should be expected in the global markets. Johnson’s Conservative Party has the parliamentary majority to govern with a new leader without going through an early election. This instability in European leadership opens the gate for further geopolitical uncertainties, creating additional opportunities for Russia to exploit this weakness

What happened

Boris Johnson, the Prime Minister of the U.K., was forced to resign after more than 50 members of his government left in just the last two days. He plans to stay as a caretaker Prime Minister until the Conservative Party conference in October.

The 2019 election was a historic moment for the U.K. as Boris Johnson’s Conservative Party managed to win a landslide Parliamentary election that empowered Johnson to shape the politics in the U.K. for years to come. The Conservatives won 364 seats in Parliament, well above the 326 seats needed for a majority, and it was the party’s best results since Margaret Thatcher’s last election in 1987 for the Conservative party.

This strong mandate by U.K.’s political standards did not last long, with scandals over parties in Downing Street during the Covid lockdowns and economic hardships due to soaring inflation. Also, Brexit-related fallout began to chip away at his standing among the populace. Earlier in the year, mounting criticism led to a vote of no confidence in his leadership, which Boris Johnson narrowly survived. The scandal that broke the camel’s back was Prime Minister Johnson’s appointment of Chris Pincher as deputy chief whip despite serious allegations of inappropriate behavior concerning him.

Our take

U.K. needs a new leader, sooner than October

T Boris Johnson will inflict severe damage to his Conservative Party if he continues to govern as a caretaker Prime Minister until October. As with two previous Prime Ministers, Teresa May and David Cameron, the handover should be relatively quick. By the end of July, we may have a new Prime Minister in the U.K. 

Who could replace Boris Johnson?

Almost a dozen names are mentioned as a replacement for Boris Johnson with Rishi Sunak, Penny Mordaunt, Liz Truss, and Sajid Javid leading the names in popularity. Unfortunately, none of these candidates have the national or international recognition as Boris Johnson.

Could this lead to an early election?

Keir Starmer, the opposition Labour Party leader, is opportunistically calling for fresh elections while the Conservative Party is in crisis mode. An early election could be disastrous for the Conservative Party. Fortunately, the party still commands a significant majority in the Parliament, and it could easily elect a new leader and give that person a chance to govern until the end of the full term. 

British pound at levels not seen since the 1980s

Margaret Thatcher was Prime Minister when the British pound was last this low. Recent political uncertainty obviously has not been helpful to the pound, but more importantly, the currency is facing structural headwinds that are hard to ignore. U.K.’s productivity is one of the lowest in Europe, and Brexit exacerbated the bottlenecks on border checks and availability of skilled workers.   

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