Prime Minister’s resignation sparks market volatility and uncertainty

The United Kingdom saw the resignation of Boris Johnson after various scandals including breaking lockdown rules which eroded his legitimacy and as he lost support from the political establishment.

The Prime Minister’s resignation comes at a time of uncertainty and global tensions, in particular as the Ukraine conflict goes on. The national economy and local financial markets are feeling the weight of high inflation as well as a more aggressive stance from the Federal Reserve as well as the Bank of England which are raising their headline interest rates, prompting talks of a possible recession.

Additionally, the UK is still handling regional issues that arose after Brexit, among them the case of Ireland.

An appropriate change in leadership could help improve business sentiment in the country and help alleviate the effects of economic slowdown and high inflation. It could also directly affect the current tax policy, which was widely criticized.

Financial markets reacted with some volatility due to the uncertainty the resignation created. As such, they could rapidly change course as new information emerges regarding a successor.

On the currencies markets, the British Pound witnessed selling pressure immediately after Boris Johnson announced his resignation. The Pound could return to the downside after an initial rebound earlier today. It could lose its gains against the Euro and extend losses against the US dollar.

The stock market also recorded some volatility but could find a positive trend while the political situation becomes clearer. The relief could however be temporary as a new government would still have to deal with inflation and slowing growth, two factors that have strongly impacted equities.