Boris Johnson Risks Facing Vote of No-Confidence - Impact on GBP/USD
Entry posted by MongiIG in Market News
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GBPUSD Analysis and Talking Points:
- GBP So Far Unfazed by Rising Political Uncertainty
- UK PM Johnson’s Tenure Hinges on Sue Gray’s Investigation
See our quarterly GBP forecast to learn what will drive prices through Q1
UK politics have been stealing the limelight in recent weeks following revelations that the UK government had been flaunting lockdown restrictions on various occasions over the last two years. In light of these revelations, voting intentions for the Conservative party have slumped, with the Labour party now showing a commanding lead. Meanwhile, the Prime Minister’s approval rating has plunged to 29%.
Source: Politico
The main focal point will be on the conclusion of Sue Gray’s investigation, which many Conservative MPs will await before they make their decision on whether to send a letter of no-confidence into the 1922 committee. Therefore, this report will be key as to whether Boris Johnson stays on as PM or not. As it stands, the Prime Minister is 3/1 to resign before the end of the month and odds on to be ousted before the Conservative Conference in October.
What needs to happen for there to be a leadership contest?
There are two ways for a Prime Minister to be ousted, either through resigning or via a No-Confidence vote by Conservative MPs. A reminder that Theresa May faced a No-Confidence vote and won, however, ultimately resigned 6-months later.
For a leadership challenge to be triggered, 15% (54 MPs) of Conservative members in PM Johnson’s party would need to write a letter to the Chairman of the party’s, Sir Graham Brady, which is called the 1922 committee. Once the threshold is reached, the chairman will announce the start of the contest and invite nominations. Recent UK press reports suggest that roughly 12 letters have already been sent privately.
What will happen during a no confidence vote?
If a no confidence vote is called, all serving Conservative MPs will be able to cast a vote for/against PM Johnson. For Boris Johnson to be ousted, a simple majority of 181 MPs would be needed, whereby Johnson would also be barred from standing in the leadership contest that follows. A victory for Boris Johnson in a confidence vote would allow him to remain in unchallenged for a year. However, there would likely be an increased risk that Boris Johnson resigns, much like his predecessor if there were a significant number of no-confidence votes in light of his weakened position.
In the event that Boris Johnson is ousted, a Tory leadership race would take place with MPs given the power to shortlist the final two candidates.
Most likely Next Conservative Leader, according to UK bookmakers
- Rishi Sunak (2/1)
- Liz Truss (8/1)
- Jeremy Hunt (8.5/1)
How quickly can a no confidence vote take place?
In the last no confidence vote against a sitting Conservative leader in 2018, the chairman of the 1922 committee announced he had received enough letters to trigger a vote with the vote held the next day.
The impact on the Pound
Ultimately, the Pound somewhat shrugged off the political noise and aside from some initial volatility should a vote of no-confidence be called, the impact on the Pound is unlikely to be long lasting. A look back to 2019 when Theresa May announced her resignation, the Pound initially rallied before quickly paring the move. As such, besides some short-term choppy trading, a change of the guard is unlikely to move the needle materially for government policy with focus on short-term drivers, particularly with a government aim to clamp down on inflation, which is now at the highest level since 1982.
GBP TRADING RESOURCES:
- See our quarterly GBP forecast to learn what will drive prices through mid-year!
- Just getting started? See our beginners’ guide for FX traders
- Trading GBP/USD: An Overview of the Pound-Dollar Forex Pair
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Jan 19, 2022 | Justin McQueen, Strategist. DailyFX
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