- New UK Prime Minister. Boris Johnson takes over from Theresa
May today as UK PM.
- Strong party mandate. With two-thirds of Conservative members
backing him over rival Jeremy Hunt, Mr Johnson has a convincing mandate from his party
for personnel changes and a new approach to Brexit.
- Weak parliamentary hand. The new PM inherits a parliamentary
working majority of only two MPs.
- Little room for manoeuvre. The UK parliament is opposed to leaving
the European Union EU on 31 October without a deal.
- Successful Brexit deal renegotiation challenging. We see a high
probability that the new PM won't reach agreement with the EU to reset the terms of
an orderly Brexit.
- Autumn general election risk. If the EU cannot be successfully
renegotiated and the UK parliament blocks leaving without a deal, a UK general election
- Electoral uncertainty. Given the polarization and fragmentation
over Brexit, the result of any election could hinge on whether PM Johnson can secure
support from the hardline anti-EU Brexit Party.
- Economy weakening. Cyclical pressures could be exacerbated by
a 'no-deal exit' and by weakening confidence due to ongoing domestic political uncertainty.
- Stay cautious for now. The risks of a 'no deal' Brexit and of
a Labour-led coalition winning a UK general election are likely to restrain UK assets
this summer. We also highlight three developments that could lead to early upside
- Selective short-term opportunities only. While UK currency and
equities are expensive, reflecting political uncertainty, we see only selective equity
opportunities for the moment.
- Wait until the outlook becomes clearer. We think the UK leaving
the EU with a deal would be very positive for UK assets. Such an outcome would likely
also keep the business-friendly Conservative Party in government. A 'no deal' exit
followed by a Conservative-led coalition would be initially negative due to the economic
impact, then recovery. The worst-case for UK assets would be a 'no-deal exit' followed
by a Labour-led coalition.
to read European Strategy Bulletin.