Markets adopt wait-and-see attitude over UK government resignations

British Prime Minister Theresa May delivers a speech at the Royal Free Hospital, in north London, Britain, 18 June 2018. EPA-EFE/WILL OLIVER

Markets adopt wait-and-see attitude over UK government resignations


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The pound was sliding against the euro on Monday, as Boris Johnson followed David Davis and submitted his resignation.

Markets are still speculating on the overall ability of Theresa May‘s government to carry on. The pound has been volatile. initially,  the resignation by David Davis was been seen as a signal of a softer Brexit favoured by markets; the resignation by Johnson was seen as the beginning of a possible revolt.

Political risk projection are split, as some view May strengthened by the exit from her cabinet of two of her staunchest critics; others see hardline Leave campaigners as released by the shackles of collective responsibility and freer to talk.

All eyes are now on May’s forthcoming White Paper, which is expected on Thursday.

This will either signal continuity or the beginning of a more concerted parliamentary revolt. That could give people like Boris Johnson the opportunity to challenge May’s leadership, nine months before the UK leaves the EU, which would call into question not only the possibility of “a Brexit deal,” but even the transition deal.

There are reasons to doubt Johnson would attempt a leadership challenge.

On the one hand, news of the economy supports Theresa May’s compromising stand. The UK’s economy picked up some steam in May, according to the Office for National Statistics. Growth is watched closely as the Bank of England is expected to make a decision on interest rates in July.

However, the British economy is driven by services, not industrial output. The only exception is construction, which is picking up pace since December 2017.  Overall, investment in manufacturing is slowing down as the risks of Brexit weigh on the sector’s investment decisions.

Services are helped by good weather, the Royal Wedding, and most market experts expect the World Cup to be of benefit as well. But, will the bank of England be confident enough to push forward with a rise in interest rates? That question could be very much dependent on how the Conservative Party reacts to the White Paper on Thursday.

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