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What's next for the British economy when Boris Johnson resigns?

Article author:

Reuters

Reuters

William Schomberg

London — Prime Minister Boris Johnson's resignation deepens uncertainty over Britain's economy, already double-digit inflation and risk recession And Brexit.

The competition to replace Johnson, who announced his resignation on Thursday, could take weeks. It further drifts the world's fifth-largest economy as Sterling approaches the dollar's first low in two years and the Bank of England is in a dilemma about raising interest rates without damaging economic activity. You are at risk of letting it go.

Conservative leadership contests vary in duration. Theresa May took less than three weeks to win after David Cameron resigned in 2016 due to the dropout of another candidate.

However, it took two months for Johnson to become the new leader after May announced his intention to resign in 2019.

This time around, at least half a dozen candidates are expected.

The following is a summary of the key questions hanging on the British economy as the political drama unfolds.

Inflation

More than many other countries, the UK is feeling the pressure of inflation at 9.1%, the highest in 40 years. The BoE expects to exceed 11% later this year.

The International Monetary Fund said in April that Britain faced more sustained inflation and slower growth than any other major economy in 2023.

Sterling's recent fall has been added to inflationary pressure since then, but the outlook for rising public spending or tax cuts to support the Fate of the Conservatives is the pound on Thursday. Pushed up a little.

But anyone who has replaced Johnson can do just that to offset the effects of rising global energy and food prices.

Fiscal Policy

Anyone who makes Johnson successful makes big decisions about taxes and spending that can not only reduce the risk of a recession, but also increase the heat of inflation in the economy. I have to do it.

When he resigned as finance minister on Tuesday, Rishi Sunak said he opposed a policy with Johnson, who had long sought tax cuts. Prior to his resignation, Snack's short-term priority was to ease the UK's debt burden of over £ 2 trillion during the coronavirus pandemic.

U.S. Banking City analysts said Priti Patel and Liz Truss, who were Conservative leader candidates Johnson's Interior Minister and Foreign Minister, said they would cut taxes quickly. He said he could demand increased spending. Snacks and former Health Minister Sajid Javid are likely to be more financially cautious.

The long-term impact of their decisions will be high.

The UK budget watchdog said Thursday that debt could rise from more than three to nearly 320% of GDP in 50 years if future governments do not strengthen fiscal policy. ..

BREXIT

More than six years after Britain's resolution to withdraw from the European Union, London and Brussels still insist on rewriting the rules that Johnson agreed in 2019. Remains a loggerhead turtle. Including Northern Ireland.

Although some economists have begun to step up UK exports and investment as relations with the EU may improve under the new Prime Minister. , Changes in the overall trade relationship may be minor.

In addition, some front runners to replace Johnson, primarily Foreign Minister Truss, publicly supported his fighting stance against the EU.

BANK OF ENGLAND

The Bank of England has raised interest rates five times since December, the sharpest in 25 years, and probably has raised interest rates as follows: Suggests to continue. There will be 0.5 percentage points at the next meeting in August.

However, the risk of a global economic slowdown has recently reduced investor bets on such a big move by the BoE. Uncertainty about the direction of UK fiscal policy may provide another reason for caution.

More political turmoil.

Johnson's exit ends another chapter in one of the most turbulent times in modern British political history, but whether his successor can calm things down. Still do not know.

Berenberg analyst Karm Pickering said the UK economy would benefit if Johnson was replaced by "a more diligent and serious individual."

However, Citi analysts said they were skeptical that the various factions within the Conservatives would unite around a clear strategy.

"In the coming months, we see Britain facing a once-in-a-generation pressure on living standards, lacking a clear strategy, and a deep division of government. Therefore, the risk of serious policy errors is significant, "they said.

"Elections are expected to take place only in 2024, but early elections should not be underestimated." (William Schomberg, edited by Mark Heinrich)