Tristan Hanson, multi-asset fund manager at M&G Investments, comments on the Conservative leadership election result
“Boris Johnson is to be the UK’s new Prime Minister. Attention will immediately turn to Brexit and the 31st October deadline.
The new Prime Minister will see if he can negotiate changes to Theresa May’s deal and, if so, will try to get a revised deal through Parliament by that date. If not, both he and Parliament will be stuck with the same immediate choices as under Theresa May’s leadership. The risk of a no deal exit may have risen, but the evidence is that Parliament will attempt to thwart such an outcome. The likelihood of a general election has also increased. So the path ahead remains as uncertain and unpredictable as the journey so far. Ultimately, whatever the interim steps, the options remain the same whoever is Prime Minister and whichever party is in government: leave with or without a deal, or remain.
More interesting may be Johnson’s attitude to fiscal stimulus and taxation. Based on the limited information provided during his campaign, there is a probability that Johnson will look to engineer an economic stimulus funded by higher government borrowing and lower taxes. So Brexit, or no Brexit, the multi-year outlook for gilts is dangerous at today’s extremely low level of yields, even if the Bank of England cuts interest rates and resumes QE. Tax cuts and higher fiscal spending is a recipe for continued gains for the stock market but the direction of sterling and Brexit developments will play an equally significant role.
It is too soon to think of longer-term consequences and how the many uncertainties will unfold. Moreover, as we have seen since the 2016 referendum, global developments can be even more important than Brexit for future returns from UK assets.”
