Boris Johnson’s resignation triggers a leadership contest for the Conservative Party and premiership that is unlikely to be settled before the autumn. This leaves a lengthy period of uncertainty over the direction of the country and economy.

Johnson’s government often leaned towards populist policies, and while he will always be remembered for Brexit, recent fiscal policy also followed a similar approach. This may have boosted growth in the near-term but also contributed to higher inflation, and higher public borrowing. The recent decisions to increase corporation taxes instead of personal or sales taxes is just one example.

The resignation of Chancellor Rishi Sunak a couple of days ago highlighted the disagreement between the Treasury and the Prime Minister’s office. The suggestion was that voters were not being given the full picture when it came to the state of the economy and public finances.

Looking ahead, the outlook hinges on who Johnson’s replacement will be. A return to traditional Conservative politics will probably bring about some austerity over the next few years, but also a return to business-friendly policies. However, another populist politician could lead to more of the same approach for the economy.

In terms of the reaction in markets, news of the resignation helped lift sterling against most other currencies, though the moves have been relatively small.

ENDS