As I write this Blog, the news channels are in a frenzy over who will replace Boris Johnson as UK Prime Minister. With his determination to cling on to power waning each day, and with the realisation that his time was up, Johnson stated on his resignation that it was “clearly now the will of conservative MPs” that he should go. So now, we shall see if his plan of staying on until October shall pan out, with reports that he faces opposition from a growing number of backbenchers and colleagues.
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.
Sterling could be better supported in the coming days with the removal of near-term political uncertainty, but we could see rallies as opportunities to sell given the prevailing economic malaise. The outlook hinges on who will replace Boris Johnson and any clear government policies.
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.
Johnson’s removal does not change the macroeconomic reality for the UK, as the toxic mix of risingcosts and slowing growth are here to stay, for now.With UK inflation at 9%, we are all feeling the effects of the cost-of-living crisis. However, any significant economic event creates some opportunities. So which stocks should we consider to beat the rising prices of essential goods? There has been rotation into companies with relatively high current earnings that return capital to shareholders with dividends and share repurchases. Commodities have a reputation as a good hedge against inflation. With sanctions against Russia set to continue, China reopening and Summer travel, we have seen Commodities boosted in recent weeks.
If you would like to discuss your current investments or future plans we would be happy to schedule a call – Contact details for the CFM team are here and my contact details are:
T: 0203 6970561.
Stephen Lovelock, July 2022
Please also see the Review of April to July 2022 from Paul Coffin, and ‘Politics, War, Philosophy, the Economy & the Markets‘ from Barrie Newton