On Wednesday morning, as London’s financial markets reopened after senior ministerial resignations cast doubt on Prime Minister Boris Johnson’s tenure, the underlying UK stock market index rose more than 2 percent, along with gains in other European markets.
The British pound rose slightly against the US dollar on Wednesday morning, rebounding slightly from a 1.5 percent fall a day earlier as investors sought the safety of the US currency amid growing recession risks around the world.
For financial markets, global trends of rising inflation, deteriorating energy security and weakening economic growth prospects have outweighed the sudden turmoil in British politics. In the short term, there is no obvious way for traders to take advantage of the news, Nomura bank strategist Jordan Rochester wrote late Tuesday. More information is needed on whether Mr. Johnson will remain in office and the plans of his replacement ministers. The recent fall in the pound is due to economic factors. Rochester wrote.
On Tuesday, Rishi Sunak referred to the economy in his explanation of why he stepped down as Chancellor of the Exchequer, the UK’s chief financial officer. He was scheduled to give a speech next week with Mr. Johnson about their plan to support the economy during a period of high inflation and slow economic growth, and it seems that the differences in their proposals were too great to overcome.
“It became clear to me that our approaches are fundamentally too different,” he said. Sunak wrote a letter of resignation to the prime minister.
Just hours later, Mr. Johnson announced Mr. Sunak’s replacement as Chancellor: Nadhim Zahavi, who was Minister of Education. mr. Zahavi was initially brought into office only last year, having previously led the introduction of coronavirus vaccines.
On Wednesday morning, Mr. Zahavi said: “I have to rebuild the economy and turn to growth, that’s my goal.”
He faces a major challenge because Britain’s economic outlook has deteriorated. Inflation hits highest level in four decades and is not expected to peak until it rises above 10 percent in the fall, when domestic gas and electricity bill ceilings are set higher. Households are facing the worst income decline in generations, and the pain is already acute as people try to spend less while credit cards and other personal debts mount.
Bank of England raised interest rates to their highest level since 2009 and said further increases were likely to come in the fight against rising inflation, even if economic growth prospects deteriorated. Enterprises are facing rapidly rising costs, and many are struggling to hire workers in the wake of Brexit and the pandemic, which have reduced the number of available workers.
mr. Sunak announced billions of pounds of extra spending in May to help people with the rising cost of living, funded in part by a windfall tax on oil and gas companies. But he expressed doubts about how much the government could use the spending to alleviate economic hardship and promotes corporate investment and lower taxes to improve performance.
Differences in policy approaches and a series of economic upheavals prevented the government from pursuing a coherent economic strategy. Late last year, Mr. Johnson said he could build high growth, high wages economy, and he now warns against massive wage hikes that could exacerbate inflation.
As wages lag far behind inflation, workers went on strike, which set Britain up for a summer of labor unrest. Recently, train workers and criminal defense lawyers have quit their jobs, and medical workers, school teachers and postal workers are among those threatening to strike in the coming months.