What a night for Boris Johnson and the UK’s Conservative party! With his impressive landslide victory in Thursday’s general election, we can expect to see sterling rise above predictions to $1.40, and billions of pent up business investment to be released to bolster Britain’s economy.
However, there are numerous, serious challenges that loom for the prime minister.
The pound enjoyed its biggest surge in 10 years on the hopes that a strong Conservative majority will at last bring an end to the Brexit parliamentary impasse.
Many traders were surprised by the size of the majority Johnson’s party achieved, driving the pound even higher than previously predicted. We may now see the more bullish of traders taking it to $1.38 or perhaps even as high as $1.40.
With the heightened political certainty as a result of this large majority, Britain’s economy will likely receive an election bounce.
Billions of pounds in business investment that has been on the back burner due to the parliamentary paralysis is now ready to be set free. This will undoubtedly provide a significant boost to the slowing UK economy.
The UK’s FTSE 100 opened higher on Friday morning, although this was something of a positive knee-jerk reaction.
This win for Johnson makes it far more likely that he will be able to ‘get Brexit done.’
The Conservatives’ majority in the House of Commons helps the PM to pass his Brexit deal, providing him with enhanced political influence when negotiating Britain’s future relationship with the European Union and lowering the risk of no-deal at the end of next year.
That said, there is still a long way to go yet. Johnson’s end of December 2020 deadline is a gargantuan challenge, and a no-deal scenario is still a possibility on January 1 2021.
In addition, the election result raises questions regarding Scotland’s future in the UK. The SNP’s gains will vitalise them in their main aim of securing Scottish independence.
The prime minister’s mammoth task to deliver Brexit with a deal, as well as the issue over Scotland, will continue to drive uncertainty into next year.
However, Johnson’s gamble went his way and the pound, Britain’s economy and UK financial assets are all celebrating Christmas early.
Nigel Green is founder and CEO of deVere Group. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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