British Prime Minister Boris Johnson announced his resignation Thursday following nearly three years at the helm of the U.K. government.
Boris Johnson became the U.K. prime minister three years ago, replacing Theresa May. Shortly after coming into power, Johnson called for a snap election where he won a parliamentary majority. However, many will remember his premiership by scandals and conservative decisions, as well as numerous allegations of misleading the public.
Why Did Boris Johnson Leave?
During his resignation speech, Johnson said the Conservative Party will start exploring options for the new leader immediately, adding he will remain in his role until the election. He also said he was sad to be leaving “the best job in the world,” though “no one is remotely indispensable.”
Johnson also thanked his family, armed forces, and the British public for allowing him this “immense privilege.” As for the members of the Conservative Party who moved to push him out in the end, he said. “At Westminster, the herd instinct is powerful and when the herd moves, it moves.”
Even after announcing that he was stepping down, Johnson faced criticism from both parties after he said he will stay in the office until the new leader is elected, as many pushed to see him step down at once.
The move comes after Johnson faced days of mounting pressure to step down from his role, with the number of resigned members from his own party reaching 60 by Thursday morning, indicating a serious lack of confidence in their leader.
Nadhim Zahawi, the newly appointed finance minister, was also among Johnson’s associates who asked him to leave immediately, citing a severe political crisis over his future. Moreover, Zahawi called for Johnson to step down just two days after he appointed him as the new Chancellor of the Exchequer.
But Johnson’s resignation should not come as a surprise given that there have been a number of things over the past few months that added to the loss of confidence in the prime minister.
A week ago, Member of Parliament (MP) Chris Pincher resigned from his duty as Government Deputy Chief Whip after he told Johnson he “drank far too much” in a private club in London and “embarrassed himself.”
What’s more, Pincher was accused of groping two men in the club, resulting in a series of sex allegations and adding to the pressure on Johnson and his leadership.
Johnson initially clung to his role when the first government members started handing in their resignations and responded by appointing replacement ministers. But that was only the beginning which resulted in a series of departures, with more than 50 MPs stepping down from their duties, including the health and finance ministers.
Earlier this year, Johnson also faced a fine for breaking coronavirus lockdown rules after organizing a gathering for his birthday two years ago, during the peak of the pandemic. Johnson publicly apologized for attending the party, though that did not stop the fierce criticism he faced from the public.
Political Crisis at the Wrong Time
Just like everywhere else, inflation has surged sharply in the U.K. over the recent months, surging as high as 9.1%. While the inflation jump was attributed to reasons that were outside of the government’s control - such as the war in Ukraine and the consequent price hikes of oil and food - Johnson’s strategy to tackle the inflation was also heavily criticized.
For example, the U.K. government announced a tax rise in April, leading to National Insurance rising by 1.25 pence in the pound.
Now that Johnson’s reign has come to an end, a search for a new party leader has begun. To become the new Tory leader, candidates have to first win the support of eight MPs to stand. If there are more than two candidates for the top role, the MPs will then participate in a series of votes until two candidates remain.
Once there are two candidates left, all members of the Conservative Party around the U.K. will then vote to choose their new leader. The 1922 Committee, consisting of all backbench Conservative MPs, will determine the timescale for each voting contest and could also decide to hold a separate vote to change the rules before the contest begins.
Once the new head of the Conservative Party is elected, the Queen will then ask them to form a new government.
How Did Markets React and What’s Next?
The FTSE 100 initially soared higher before paring back gains as investors seek more clarity on who will replace Johnson. Still, the benchmark UK index closed 0.4% positive on the day. The 10-year U.K. government bond yield climbed to 2.125%.
The British pound (GBP) jumped higher against the U.S. dollar after Johnson announced his resignation. London and Capital’s head of U.K. equities Roger Jones noted “some relief” in the Forex market as “this is not going to be long and drawn out with the prime minister refusing to go and ultimately causing a policy stalemate.”
The new developments in the U.K. government are now closely followed by investors, who are wondering how the country’s economy will react to the latest events. Capital Economics’s head economist Paul Dales said that the U.K.’s fiscal policy may become a bit looser and monetary policy a bit tighter from now on.
Berenberg senior economist Kallum Pickering expects a better period for the British pound, saying that “the balance of potential outcomes would tilt towards less strained relations with the EU.” He believes that the overall situation around the U.K.-EU relationship will be significantly calmer because even the loudest pro-Brexit candidates “are less of the populist variety than Johnson.”
Since Boris Johnson took office in the summer of 2019, both the FTSE 1000 and FTSE 250 lost about 8% in value. This compares to gains of 29% for the S&P 500 in the same period of time. When it comes to the UK crypto market, some turbulence is expected. Two key players in the UK’s crypto friendly policy have recently resigned over the political situation.
Investors will be now searching for clues on who is the most likely person to replace Boris Johnson. The optimism is centered around a potential change in fiscal policy that could provide fuel for the stock market to recover from YTD losses, so buying and selling shares in the UK is anticipated to remain popular.
For instance, some are hoping for a cut in corporate taxes that are due to be raised to 25% next year.
In the meantime, UK assets will be “dominated by the threat of entrenched stagflationary dynamics and the associated pressure on the Bank of England to speed up hiking into an unfolding economic slowdown rather than the political change of the guard,” according to Evercore ISI analysts Krishna Guha and Peter Williams.
Conclusion
Boris Johnson resigned yesterday from the position of the UK’s Prime Minister after a series of scandals and political affairs. Both the GBP and FTSE 100 moved initially higher on the news, although the uncertainty surrounding his successor is likely to cap any larger gains.
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