Boris Johnson might well be the front-runner for the leadership of the British Conservative Party and therefore in line to be the UK’s next Prime Minister, but his Premiership, if realised, would be bad news for the pound, says the founder of a leading financial advisory firm.
In a note to clients, Nigel Green, Chief Executive Officer and Founder of deVere Group, one of the world’s largest independent financial advisory organisations with $12bn under advisement, said Johnson would drive the pound down even further should he win the keys to Number 10.
With support of more than 40 Conservative MPs, Johnson is far ahead of his rivals. But Green, who supported ‘Remain’ in the UK’s EU referendum, noted: “The pound will be delivered another bloody nose should Johnson win the race. Further downward pressure will hit the currency in this scenario due to the increased likelihood that the UK would be taken into a no-deal Brexit by him.”
Brexit aside, a Johnson victory would almost certainly increase sterling volatility, Green added. “He is known for his erratic style and has a long history of gaffes and controversies - including his infamous ‘f**k business’ comment. If he takes the UK’s top job, his unscripted comments may result in sharp moves in the pound. During the past two years, the pound has been battered when it comes to its price against other currencies.”
The deVere Group founder added that the fall in the pound is good for exports some claim, but it must be remembered that around 50% of UK exports rely on imported components.
“These will become more expensive as the pound falls in value. A low pound is, of course, bad news for British holidaymakers and travellers abroad - with trips to Europe and the US increasingly expensive. Even destinations such as Dubai and China are more expensive as their currencies are pegged to the US dollar.”
“Arguably, the key issue for the UK, however, is that one of its biggest and most important sectors, financial services, will suffer from another knock to the pound. It will be hit because it is built on foreign investment that puts its faith in a strong pound.”
Financial services contribute 6.5% towards British GDP and is part of an overall service sector that forms 80% of the country’s economic output.
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