The recent dramatic events that led to the resignation of UK prime minister, Boris Johnson, on July 7 2022 raise the issue of how politics – and economic policy uncertainty more specifically – affects the UK economy. The answer, of course, is that it does, and sometimes for as much as two years.
News of Johnson’s resignation produced a small rally in sterling, which was limited by expectations of his exit after a flood of ministerial resignations in the preceding days. The likelihood of a UK recession has probably had more of an impact on the pound recently, but an upward tick in political certainty following days of speculation over whether Johnson would resign seems to have boosted sterling. This certainty will, of course, be short-lived as we now must wait for the outcome of a Conservative Party leadership contest.
