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More falls for sterling if Boris Johnson gets to Number 10
Should Boris Johnson be the next UK Prime Minister, we can expect the pound to be driven down even further.
Johnson is the favourite to win the Tory leadership contest, securing the support of over 40 Conservative MPs, placing him streets ahead of his rivals.
As such, should he get to Number 10, the pound will be delivered another bloody nose.
Additional downward pressure will impact sterling in this case due to the increased probability of Boris Johnson taking Britain into a no-deal Brexit.
However, even with Brexit aside, a win for Johnson in the Conservative leadership battle would almost certainly increase the volatility of the pound. He is renowned for his gaffes and controversies, so if he does get the keys to Number 10, his off-the-cuff comments could lead to sharp moves in sterling.
Indeed, over the past two years, the pound has been battered in regard to its price against other currencies.
The substantial fall in the value of sterling has lessened people’s purchasing power and resulted in a drop in UK living standards.
Furthermore, weaker sterling means costlier imports, with mounting prices being passed on to customers.
Although some people are of the opinion that the fall in sterling is good news for exports, it must be remembered that around half of UK exports depend on imported components. As such, if the pound drops in value, these will become more expensive.
In addition, a low pound is not what British holidaymakers and travellers overseas want to hear, as trips to the U.S. and Europe become more and more expensive. Destinations such as Dubai and China are also more expensive as their currencies are pegged to the U.S. dollar.
That said, the predominant factor for Britain is that one of the country’s biggest and most important sectors, financial services, will suffer with another blow to the pound. It will be impacted as it is built on foreign investment that puts its faith in a strong pound.
Indeed, financial services contributes 6.5 per cent to British GDP, forming part of an overall service that makes up 80 per cent of the UK’s economic output
Since the Brexit referendum three years ago, a weak pound has in fact become the ‘new normal. However, if Boris Johnson does secure the job as the next Prime Minister, sterling can be expected to fall further.