"Boris - isn't that a Russian name?" I read that somewhere online this week. As has been widely predicted, Boris Johnson became the new UK Prime Minister this week, and so this is a short update on what we might expect from him and the Brexit process over the next few months.
I will try to put aside my personal opinions, but to say I am disappointed is a slight understatement. Not only do we have another global leader who looks like President Trump but acts like him too in many ways.
Boris Johnson's limitations have been widely reported in the UK media, but my London-based investment team know people who have had first-hand experience of working with him, including a former MP. He is widely described as lazy, disorganised, unprepared, lacking attention to detail and total self-serving.
This is the man who is now supposed to lead the Brexit process, the greatest social, political and economic challenge the UK has faced since the World War II, with huge implications for the future of the country. Yikes.
So, what are the next steps in this Brexit madness. Not much until September 2, as Parliament is now in recess for the summer break (if only the everyday person had the same generous leave entitlements as politicians).
In the meantime, Johnson will likely make some trips to Europe to try and discuss options with European leaders. These leaders have very little trust that Johnson will keep his word on anything (given he has made numerous about-faces in the past) and they blame him more than anyone for the whole Brexit mess. He will likely therefore make grandiose threats of a no-deal Brexit in the hope of concessions which are unlikely except possibly on time limitation for the Irish backstop.
The risk of a no-deal Brexit is clearly much higher now and therefore sterling has been weak in the past couple of months. NZD/GBP is now back to around 54p (but off its Brexit peak of 59p back in 2016).
The promise of more candy, as is the case with most politicians, is on the cards. Johnson has promised a large fiscal stimulus involving tax cuts, but the details are light to say the least. There is some room for fiscal easing after the years of austerity, but this would entail inflation risk when unemployment is low and wage pressures are increasing. The government only has a very slim working majority and so passing anything would not be easy.
There remains the possibility of another election. The support for the Conservative Party is now down to 24 per cent from 40 per cent in March, with the Brexit Party having made big strides, as have the Lib Dems who are pro-Europe. Johnson may well keep up his hard-line no-deal Brexit rhetoric over the summer to try to win back some of the voters from the Brexit Party, and then potentially go for a snap election as Labour are in disarray – but this would be very risky – a hung parliament could result in the middle of Brexit.
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I still think there is an outside chance of a second referendum. I know this might sound crazy but if there was another election and Labour was to win, after campaigning to have a second referendum then this might kick the can even further down the road. Polls say another referendum would likely see the UK remain, as Euro sceptics are falling in popularity, with the Euro Zone relatively stable in recent years.
In summary, I'm afraid the grinding uncertainty is set to continue for another few months or even get worse. This is not positive for UK assets or sterling, and you can clearly see UK indices underperforming right now, with the AIM index off 5 per cent from its May levels. Of course, uncertainty creates opportunity.
And there has been a lot of uncertainty for UK investors to fret about for more than three years now. Not just domestically, but internationally too. This has left a number of unloved assets in the UK and while the economy is weak, once an outcome has been reached (Johnson has promised an outcome by October 31) I'm convinced that the UK will offer some good investment opportunities – whatever the Brexit outcome, as investors come out from hiding and green shoots start to appear.
- Mike Taylor is the CEO of Pie Funds.