Boris Johnson said Thursday he will step down as U.K. prime minister, following massive resignations from top government officials.
Mr. Johnson will remain as prime minister until October, when the Conservative Party convenes to name his successor.
The announcement followed a slew of resignations by senior members of Mr. Johnson’s government, including Pensions Minister Guy Opperman. More than 50 members of the government have resigned over recent days and had encouraged Mr. Johnson himself to step down.
Until then, there is likely to be uncertainty over where the U.K. economy is headed, Azad Zangana, senior European economist and strategist at Schroders, said in a statement.
Mr. Johnson’s populist policies, including on fiscal matters, “may have boosted growth in the near-term but also contributed to higher inflation, and higher public borrowing,” said Mr. Zangana, who cited a recent increase of corporate taxes instead of personal or sales taxes as an example of that populism.
Conflict between the prime minister’s office and the Treasury, including Chancellor of the Exchequer Rishi Sunak who resigned earlier in the week, suggested “that voters were not being given the full picture when it came to the state of the economy and public finances,” Mr. Zangana said.
That makes Mr. Johnson’s replacement critical, with a more traditional Conservative leader likely to have business-friendly policies, he noted.
News of Mr. Johnson’s resignation gave a small lift to the pound against other currencies, rising 0.5% against the dollar to $1.199 early Thursday, when reports broke that the resignation was imminent.
Despite that small lift, the pound has traded significantly lower since the 2016 Brexit vote and “any further weakening exacerbates pre-existing trends,” said Laura Foll, U.K. equities portfolio manager at Janus Henderson Investors. U.K. equity markets with substantial overseas earnings will see a positive translation benefit, while some domestic companies relying on purchasing inputs in dollars will see more cost pressure, Ms. Foll said.
The political uncertainty “comes at a time when sentiment towards U.K. equities is already poor,” Ms. Foll said, so replacing Mr. Johnson could lift some of that impact, but the next leader will still have to “tread a fine line between putting government finances back on a more sustainable pathway and meeting a number of shorter term and longer term pressures to increase spending,” Ms. Foll added.
The initial market reaction could be short-lived, said Charles Hepworth, investment director at GAM Investments, in a separate statement. “The economic malaise that the U.K. finds itself in is unlikely to reverse course anytime soon,” Mr. Hepworth said.
