An unprecedented string of resignations by more than 50 ministers has pushed Boris Johnson off his chair as leader of the Conservative Party.
He resigned this morning in the midst of a choir of protest resignations initiated on Tuesday evening by chancellor Rishi Sunak and health secretary Sajid Javid.
The ministers who left have done so saying they can no longer trust No 10, after varying accounts on the knowledge of sexual misconduct allegations against deputy chief whip Chris Pincher MP.
The final blow was delivered by newly appointed chancellor Nadhim Zahawi, who urged Johnson to “do the right thing and go now”.
The prime minister been under increasing pressure since Partygate all the way through to early June, when he survived a vote of no confidence.
Markets were relatively subdued on the news as investors have been reading the tea leaves for several days, although the pound rose in the immediate aftermath.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “With the mood music changing so abruptly in Westminster and Boris Johnson finally deciding to leave 10 Downing Street, the pound lifted against the dollar, heading back up to $1.20 before dipping back slightly.
“The pound’s wavering path indicates that traders believe it’s not quite the end to the political stalemate.”
There is still some debate around when exactly he should step down as prime minister, with Johnson intending to stay until the autumn to allow time for a Conservative leadership contest, while some MPs have already raised their voices to have him go "as soon as practicable".
Tim Graf, head of EMEA macro strategy at State Street, said Johnson’s removal does not change the macroeconomic reality for the UK, as the toxic mix of rising household costs and slowing growth are here to stay.
“Sterling could be better supported in the coming days with the removal of near-term political uncertainty, but I would see rallies as opportunities to sell given the prevailing economic malaise”, he said.
However, Neil Birrell, chief investment officer at Premier Miton Investors, said that the news will add yet more uncertainty to the UK’s economic outlook.
“It can only discourage investors, particularly international ones, from committing capital to the UK, either in financial markets or corporately,” he said.
While it is unlikely that it will have much of an effect in the short term, “there are potential long-term ramifications and markets will reflect those, for good or for bad, as the situation plays out,” he added.
Schroders senior European economist and strategist Azad Zangana said 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,” he said.
Graf also wondered what the Bank of England’s response would be. Any slowdown in growth would likely temper their plans to raise interest rates, which would weigh on the pound, he argued, although there would also be benefits.
“A less proactive MPC [Monetary Policy Committee] could leave gilts more attractive as a consequence,” he suggested.
“And UK equities, particularly large-cap multinationals, should be able to continue their better relative performance given we expect the weakness of sterling to extend.”