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Market Extra: The City delivers the biggest insult of all to Boris Johnson: Indifference

It used to be the ultimate embarrassment for those who value their public credibility.

The soccer manager is fired, and the badly performing team immediately embarks on a winning streak. The chief executive steps down, and the share price surges.

But for political leaders, perhaps the worst reaction is, well, no reaction.

And so, as beleaguered U.K. Prime Minister Boris Johnson tried to bat away a barrage of insults and calls for his resignation during Wednesday’s session in Parliament, the muted response from the City may hurt.

Gilts
TMBMKGB-10Y,
2.042%

and equities moved in line with the global market narrative, and in the currency market, there was noticeable ennui. No plunge in sterling
GBPUSD,
-0.23%

on worries about political turmoil. No surge in sterling on the belief that a new leader for the supposedly market friendly Conservative party may help their re-election at the next poll.

“Gone are the days when the sudden departure of a U.K. chancellor and an open split with the prime minister were big news in foreign exchange,” said Adam Cole, chief currency strategist at RBC Capital Markets.

Why the relative calm? In a word: continuity.

Most Parliament watchers believe Johnson’s days are definitely numbered after a slew of resignations — including finance minister Rishi Sunak — which came in response to another spat about the PM’s honesty.

But if he does leave No 10 Downing Street — Penny Mourdant, minister of trade, is the bookmaker’s favorite to succeed him — there is unlikely to be a radical shift in government policy. There is a reason his party is called the Conservatives.

Granted, there is talk that new finance minister Nadhim Zahawi may cancel plans to raise corporate taxes from 19% to 25%, and may also deliver a cut in consumption taxes to help households.

But such moves are not definite, and analysts query their value. “While more fiscal easing in the U.K. was very much expected, this type of broad-based, immediate easing would likely be seen as stimulating demand across the board and potentially stoking inflationary pressures, rather than necessarily targeting anything specifically related to the cost-of-living crisis,” said Orla Garvey, senior fixed income manager at Federated Hermes.

More importantly from a market perspective, fiscal twiddling is currently trumped by far greater factors pressuring the U.K. economy, such as higher energy costs, tighter monetary policy and a global slowdown.

The FTSE 250
MCX,
+1.64%
,
a better gauge of the U.K. economy than the more globally-biased FTSE 100
UKX,
+1.60%
,
was up 1.2% on Wednesday, but this reflected a sharp rebound on Wall Street overnight. In fact, the barometer of medium-sized U.K. stocks remains only just above its lowest level since November 2020, and not much better off than where it was in 2015, the year before Johnson and others persuaded the U.K. to leave the European Union.

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