Following Theresa May’s resignation, Boris Johnson is the front-runner to take control of the Conservative party and take over a Prime Minister of the UK – but would the appointment of the hard-Brexiter would be a disaster that would drive the value of the pound down even further?
One high-profile businessman certainly seems to think so.
Already weak pound will fall further if Boris Johnson is PM: deVere CEO
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 keys to Number 10.
This is the stark warning from Nigel Green, the CEO of deVere Group, one of the world’s largest independent financial advisory organisations with $12bn under advisement.
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.
Mr Green says: “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.
“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.
“Frontrunner Boris 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.”
Mr 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.
Mr Green notes: “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.”
He continues: “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 per cent 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 U.S. 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.”
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.
The deVere CEO concludes: “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.”
Is your business worried by Brexit?
The UK has been living in a Brexit-bubble ever since the Eu-referendum result was announced, and this uncertainty – which has been allowed to drag on and on as the UK government has been unable to secure a deal – has seen many companies announce their intention to leave the UK.
Ford has become the latest company to do so, announcing the closure of its Bridgend plant after 40 years. A number of factors have been blamed for the decision, including the increasing electrification of cars and falling diesel sales, which have forced car makers to change their business strategies. But Brexit has also burdened some of the blame, the main issue being that leaving the EU without a deal could hit complex cross-border supply chains, making it less profitable to produce vehicles in the UK.
The uncertainty is killing UK businesses – if a hard-line Brexiter like Johnson does get the keys to Number 10, this uncertainty would end, but at what cost?