Pound falls on Johnson’s leadership uncertainty

Worrying economic data also erased earlier gains for sterling against the US dollar and the euro.

07 June 2022

The pound has stumbled lower amid uncertainty over Boris Johnson’s leadership despite his victory in Monday’s confidence vote and as fears mount over the strength of the UK economy.

Sterling was lower against the US dollar and the euro as questions swirled around the Prime Minister’s position, having initially held on to gains after the vote was announced late on Monday.

The pound fell as much as 0.7% to 1.24 US dollars and half a cent to 1.17 euro at one stage on Tuesday – a sharp drop from earlier gains of nearly 1%.

London’s FTSE 100 Index was also lower, edging down six points at 7602.4 in morning trading.

There are fears in the City over the path ahead for Mr Johnson after 148 of his own MPs voted against him, declaring they had no faith in his ability to lead the party.

Tory MPs voted by 211 to 148 in support of the Prime Minister, with the scale of the opposition greater than that seen in 2018 when Theresa May faced a confidence vote.

The pound also wobbled due to concerns over what action Mr Johnson may take to boost his support from the public and his own political party and what impact this may have on the economy.

Neil Wilson, chief market analyst at Markets.com, said: “Sterling limped to a three-week low versus the greenback, not helped by the ongoing uncertainty around Boris Johnson’s leadership.

“He just about survived the confidence vote but it was hardly what you might call a ‘vote of confidence’ from his peers.”

He added that “more pressingly for the Tory will be two huge defeats” expected in the upcoming by-elections on the June 23 in Wakefield, West Yorkshire, and Tiverton and Honiton in Devon.

The pound’s decline also came as a closely-watched economic report showed the UK’s powerhouse services sector suffered its worst performance for over a year last month in a further sign that the UK may be heading for recession in the cost-of-living crisis.

Figures separately out on Tuesday showed retail sales dropped 1.1% last month as consumers tightened their belts, according to the latest monthly BRC-KPMG retail sales monitor, in another worrying sign for the all-important services sector.

Victoria Scholar, head of investment at interactive investor, said the pound’s international standing is taking a bashing.

“The currency is suffering amid a lack of international investor confidence in the UK both economically and politically with criticism of Johnson’s leadership expected to continue and the potential for Government legislation to be blocked by members of his own party,” she said.

“Given that markets hate uncertainty more than anything, the fact that sterling rallied on Monday morning after the no confidence vote was triggered speaks to Johnson’s lack of popularity among investors.”

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