What the UK’s no-confidence vote means for the pound

Boris Johnson is to face a vote of confidence in Parliament after a group of Conservative MPs turned against him. Saloni Sardana looks at what it might mean for the pound.

After weeks of speculation, the day of reckoning has come. UK prime minister Boris Johnson faces a no-confidence vote later today, after at least 54 MPs submitted letters requesting his removal from office. 

Conservative MPs will vote in a secret ballot between 6pm and 8pm tonight to decide if they still want Johnson to serve as PM.

How did we get here? 

A confidence vote was triggered after at least 54 Conservative MPs (the minimum number required to meet the 15% threshold) wrote to Sir Graham Brady, chairman of the 1922 committee of Tory backbenchers, requesting that Johnson be removed from office. 

To stay in power, Johnson would need to win at least 50%-plus-one of MPs’ votes. 

We’ll leave the politics to other commentators, but what does the vote on Johnson’s future mean for sterling?

Why has the pound moved higher?

The threat of the imminent removal of a leader might seem to be a bad thing for a country’s currency. 

During the political upheaval that surrounded Theresa May’s efforts to push Brexit through, the pound swung violently, yet despite today’s vote, sterling has been trading higher against both the US dollar and the euro. So what’s going on? 

Daniela Sabin Hathorn at spreadbetting group IG notes that today’s vote is very different to the vote against May, in that it won’t make a huge difference to the UK’s economic direction. “The positive momentum in sterling suggests that markets are not worried about the outcome of the vote… as the impact on the economic outlook is likely to be limited.”

Other analysts note that the pound’s move higher is nothing to do with the vote, and is much more the result of a weakening US dollar, as many central banks across the world embark on catch-up interest-rate rises to combat inflation. 

What is the outlook?

Markets believe it’s unlikely that Johnson will lose, says Bloomberg: “Bookmakers are offering long odds on Johnson’s ouster, suggesting their belief that such a scenario is unlikely.” 

If Johnson escapes eviction today, he cannot be challenged for another 12 months – in theory, at least. However, that doesn’t mean the rules could not be changed.

It’s also worth noting that while May survived her no confidence vote in 2018, she still stepped down less than a year later, so merely surviving the vote is no guarantee that Johnson will remain in power for the next election – or that the uncertainty will go away.  

It is also worth noting that the pound had anyway been on a somewhat poorly trajectory and has recorded five consecutive months of losses due to Britain’s sluggish growth forecasts. 

So the pound could see some further pain for reasons outside of the confidence vote. “The pound remains vulnerable in the short term given worsening growth prospects and a potential re-pricing of BoE rate expectations,” ING Bank Analysts told Reuters, adding that a fall below $1.25 could pave the way for further declines to $1.230-$1.235.

Recommended

Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022
The MoneyWeek Podcast: nuggets of positivity in an extended bear market
Investment strategy

The MoneyWeek Podcast: nuggets of positivity in an extended bear market

Merryn and John talk about he need for higher wages and lower house prices, and why the fact that this is the least dramatic bear market they’ve ever …
1 Jul 2022
Here are the best savings accounts on the market now
Savings

Here are the best savings accounts on the market now

With inflation at more than 9%, your savings are not going to keep pace with the rising cost of living. But you can at least slow the rate at which yo…
1 Jul 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
22 Jun 2022
Gold has been incredibly boring to own – but that’s no bad thing right now
Gold

Gold has been incredibly boring to own – but that’s no bad thing right now

Stocks, bonds and cryptocurrencies have all seen big falls this year. But gold remains at its one-year average. It may be dull, but it’s doing what it…
29 Jun 2022