Johnson is set to face MPs at PMQs at lunchtime, after a snap YouGov poll suggested that two-thirds of Brits now want Boris Johnson to resign.
After yesterday’s flurry of cabinet and other resignations, the minister for children and families, Will Quince, quit this morning, saying he was going after being given an “inaccurate” briefing over the prime minister’s appointment of a politician who was the subject of complaints.
Economists at Daiwa say:
Politics to continue to dominate in the UK, with a majority of Brits wanting Johnson to quit; construction PMIs to offer little distraction on the economic front After yesterday’s resignation of two senior cabinet ministers – including chancellor Sunak, whose departure raises the possibility of a looser fiscal policy over the near term – over issues related to the PM’s basic integrity and competence, and a couple of further junior resignations this morning, politics will continue to dominate in the UK.
While the PM might just about make it through the summer, he seems highly unlikely to see out the year in Downing Street, with changes to Conservative leadership rules likely to be instigated if he doesn’t resign. And those increased expectations of Johnson’s departure should give support to sterling.
European stock markets are rallying after yesterday’s slump, caused by recession fears.
The FTSE 100 index in London is now trading 161 points higher at 7,189, a 2.3% gain. The German and French indices are more than 1.6% ahead while the Italian borsa has risen 1.5%.
Here are more comments from the Bank of England’s deputy governor Jon Cunliffe, who said this morning that the central bank “will act” to ensure high inflation doesn’t become embedded.
UK inflation rose to a 40-year high of 9.1% in May, and the Bank expects it to reach 11% in the autumn. The central bank is targeting a rate of inflation of 2%, and in response to soaring prices it has hiked interest rates five times since December. He told BBC radio 4’s Today programme:
It’s our job to make sure that as this inflationary shock passes through the economy we don’t find that leaves us with inflation being the new normal, the sort of embedded psychology. People can have confidence that we will act to make sure that that doesn’t happen.
Cunliffe also acknowledged the impact of the cost of living crisis, and that the economy is slowing.
What we expect is that the cost of living squeeze will actually hit people’s spending and that will start to cool the economy, and we can see signs that the economy is already slowing.
He said most of the forces driving up inflation were from abroad, as Russia’s invasion of Ukraine in late February has sent energy and food prices spiralling – and that the Bank would act to avoid a wage-price spiral.
Those prices will not continue to rise forever and as that shock passes, the economic conditions in the country have to be ones that do not allow the wage-price spiral to develop… and that’s where we’ll do what’s necessary.
The Bank has been criticised for being slow to act to curb soaring inflation, but Cunliffe said:
We’ve increased rates at every meeting for the last five meetings. I don’t think that has ever happened actually before in the history of the monetary policy committee.
The UK’s new chancellor, Nadhim Zahawi, said this morning that he would look at ways in which the country can remain “competitive and dynamic” with its European neighbours and the rest of the world.
Asked about taxes, he said the prime minister wanted to ensure that the government had fiscal discipline, and that he he shared that view. He told the BBC:
Of course I will be looking at where else can I make sure the economy remains competitive and dynamic with our European neighbours and the rest of the world as well. Nothing is off the table.
Stock markets in London and the rest of Europe have opened higher after yesterday’s losses.
The FTSE 100 index in London is trading 92 points higher at 7,118, a 1.3% gain, following yesterday’s near-3% slump. Germany’s Dax is up 1.6%, France’s CAC opened 1.3% higher, and Spain’s Ibex and Italy’s FTSE MiB both advanced 1.1%.
JPMorgan economist Allan Monks says events could move quickly:
Both chancellor Sunak and health secretary Javid have stepped down, placing significant additional pressure on the Prime Minister whose position was already weakened after only narrowly winning a confidence vote last month.
Current party rules stipulate that Johnson cannot face another no-confidence vote until next summer. But the main risk now is either that those rules will be changed to force another vote, or Johnson is pressured to voluntarily step down. Events could move very quickly, with a Conservative leadership contest potentially putting in place a new prime minister in the next couple of months or so – ahead of the party’s annual conference in early October.
Monks has also looked at the recession fears.
While there are several factors behind the resignations, one highlighted by Sunak was differences in opinion on the direction of fiscal policy ahead of a joint speech on the economy that had been planned by the chancellor and Johnson next week.
As recession fears mount in the face of sharply rising gas prices and reduced supply, pressure will remain for the next chancellor to deliver at least further targeted support. But the odds of a more politically motivated income tax cut appear to have receded. Our forecast shows a small contraction in GDP on average from the second to the fourth quarter, which future fiscal announcements this year could yet lean against. But the main risk now is that the weight of drags on the economy undermine business confidence and hiring intentions, which have so far remained robust and underpinned the recovery to date.
It is worth pointing out that talk of recession is based on expectations rather than any discernable evidence in the latest business survey. Vacancies remain elevated despite a recent fall, and an upward revision to the June PMI today from 53.1 to 53.7 leaves the survey some way from recession levels and consistent with a 1.5-2.0% pace of growth based on historical comparisons.
The combination of recent events are weighing further on the currency and equity markets, highlighting the still two-sided nature of the risks faced by the monetary policy committee. The question is whether growth headwinds will do some of the MPC’s work for them – potentially causing that Bank to step back from prior hints of a more forceful response from monetary policy and instead opting to continue along a more gradual path. But unless the labor market weakens materially in the face of current headwinds, pressure will remain on the Bank of England to continue tightening.
Good morning, and welcome to our rolling coverage of business, the world economy, the financial markets, and the cost of living crisis.
UK stock markets are expected to stage a cautious recovery today after their worst single-day performance in three weeks yesterday amid recession fears, as investors brace for months of political uncertainty.
Boris Johnson’s premiership is hanging by a thread, after the chancellor, the health secretary and a string of Conservative aides dramatically quit last night, dealing a crushing blow to his authority following a slew of self-inflicted scandals.
After Sajid Javid, the health secretary, and Rishi Sunak, the chancellor, both resigned, they were replaced by Steve Barclay and Nadhim Zahawi (previously education secretary) respectively. And Michelle Donelan has become the new education secretary.
Stock futures suggest the FTSE 100 index could rise more than 1% when London opens, a partial recovery from yesterday’s 2.9% tumble.
The political drama added to the selling pressure on the pound. Sterling already struggled yesterday amid recession fears, and is currently trading at a two-year low of $1.19, down 0.3% on the day. The dollar, seen as a safer currency, as benefited.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:
The political turmoil in the UK certainly added to the selling pressure on the sterling, however the reason why cable slipped below the 1.20 mark was a booming US dollar, across the board.
Stock markets in London and across Europe were hit by rising worries about a European recession yesterday, and the euro slumped to a two-decade low, as a jump in natural gas prices intensified the strain on the European economy. European futures point at a positive start this morning, but gains remain fragile.
We have taken a look at the favourites to succeed Johnson as prime minister.
And here is what other papers say:
Meanwhile, Bank of England deputy governor Jon Cunliffe has said that the central bank “will act” to ensure that the recent surge in inflation does not become embedded in the economy. He told BBC radio this morning:
It’s our job to make sure that as this inflationary shock passes through the economy we don’t find that leaves us with inflation being the new normal, the sort of embedded psychology.
People can have confidence that we will act to make sure that that doesn’t happen.
- 8.30am BST: Eurozone S&P Global construction PMI for June
- 9.10am BST: Bank of England’s chief economist Huw Pill speaks
- 9.30am BST: UK S&P Global/CIPS Construction PMI for June (forecast: 55)
- 10am BST: Eurozone retail sales for May
- 1.30pm BST: Bank of England deputy governor Jon Cunliffe speaks
- 2.45pm BST: US S&P Global composite and services PMIs final for June
- 3pm BST: US ISM Non-Manufacturing PMI for June (forecast: 54.3)