This week saw Boris Johnson anointed as UK Prime Minister. While he wants to defy ‘the doubters, the doomsters and the gloomsters’, expectations for an incoming Prime Minister can seldom have been lower.
Johnson’s accession makes a no deal significantly more likely. This continued uncertainty is likely to be the worst outcome for UK assets. The argument for holding UK assets is still unclear as Johnson brings the potential for the hardest of hard Brexits. He has assembled a cabinet of hard Brexiteers, leaving out moderating influences such as Jeremy Hunt or Philip Hammond. As intended, it sends the strongest possible message to Brussels that he is willing to pursue no deal unless he is offered a better deal.
It is tempting to believe that this determination will bring a welcome resolution to the Brexit uncertainty on 31 October. This, in turn, would shore up British assets. However, this seems unlikely. It has been argued that ‘no deal’ is more likely to condemn the UK to protracted negotiations for years into the future as we renegotiate all the trade deals with Europe. There will be uncertainty over the survival of the Union.
Few doubt that Boris Johnson’s appointment as the next Prime Minister increases the likelihood of a no deal, which in turn could cause Sterling to weaken and will hurt the UK’s near-term growth opportunities. That said, sterling remains little-changed on news of the new PM. This at least suggests that a ‘no deal’ outcome is factored into prices. This may imply that things can’t get significantly worse.
However, the political climate remains very unsteady in the UK and it is difficult to see how stability will emerge in the short-term.