Tuesday 23 July 2019 10:46 am Markets Talk

Does Boris mean bad news for cable?

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Johnson and Hunt are waiting to see which of them will be the next Prime Minister of the UK.

Tory members voted for the next leader yesterday, with the winner expected to be announced this morning. The outcome of the Tory leadership contest will decide who will lead the UK in its exit from the EU later this year, and Boris – who has refused to rule out closing Parliament to secure a no-deal Brexit – is expected to walk it.

Cable is unsurprisingly twitchy on the topic of Brexit, and it pushed higher last week when MPs made it harder for the future PM to force through a no-deal Brexit by suspending Parliament.

The legislation states that even if Parliament is suspended, it must sit for a few days in September and October to discuss the ongoing issue in Northern Ireland. It also requires ministers to make reports every fortnight on progress towards re-establishing the collapsed, devolved executive in Northern Ireland, and to gives MPs the chance to debate and approve those reports.

While the bill is not capable of preventing Parliament being suspended, it would make it harder to force through a no-deal Brexit without MP support.

Is the outcome already fixed?

Many are just waiting for the announcement of Boris as the next Prime Minister to be made official. A poll of Tory members suggested that Boris has two-thirds of the vote. More than half of those who voted Conservative in the last general election would vote for Boris, compared to just 27 per cent for Hunt. Voting closed last night and the winner is expected to be announced just before midday.

Baring something spectacular, we are looking at Boris taking over the reins as Prime Minister on Wednesday, shortly after Theresa May’s final Prime Minister’s Questions . So, while markets are sure to react to the news, it’s likely that much of the turbulence has already been factored in.

What to expect from the markets

Concerns about Brexit – and, therefore, the leadership contest – continue to drag the sterling down. GBPUSD had started the session north of 1.25 but was last making new lows around 1.2460. It’s likely that if hard-brexiteer Boris is announced as the next PM, the currency will take a knock.

However, leading thinktank National Institute for Social and Economic Research (NIESR) has warned that the dampening impact of Brexit over the last three years could have dragged the UK into recession already.

Overall, the think tank sees a 30 per cent chance GDP will decline over the course of 2020, and that probability will be higher if Britain crashes out of the EU.

Even if a no-deal Brexit is avoided, NIESR predicts the economy will grow just 1.2 per cent this year and 1.1 per cent next year as uncertainty about Britain’s future trading relationship with the bloc will hold back investment and slow growth.