Boris’s new cabinet wins plaudits from the City

So far, so good. The pound hasn’t crashed and investors have not fled the country after Boris Johnson’s Midsummer Massacre.

Au contraire. Sterling is still rather enjoying its Boris bounce to hit a high for July and the FTSE 100 Index joined in on the ride.

While the prospect of Johnson becoming PM has been priced into the currency markets for several months, there were natural fears that sterling would fall when he finally made it to No 10.

Markets are cruel barometers of mood at the best of times. So it’s no surprise that the more cynical traders are loving the brutality of Johnson’s Cabinet clear-out and determination to present a serious Brexit team. To mark the massacre, the pound rose to E1.12.

As one trader put it:  “The more brutal the better it is. What markets want is certainty, or at least certainty about direction of travel.”

“Now at least we can see there is a proper Brexit Cabinet in power capable of making the tough decisions ahead.”

The City was also cheered by the confirmation that one its own – the former global head of credit trading at Deutsche Bank – Sajid Javid – is the new Chancellor. It is now hoped that Javid will be strong enough to shake-up the Treasury from its natural pessimism over Brexit but also that he will be true to his word and inspire some radical tax reform. What the City wants most of all is a Lawsonian style approach to tax reform – as well as cutting – but also some original thinking with regard to SMEs and encouraging more investing in small companies.

The appointment of Andrea Leadsom to become Secretary of State at the Department of Business, Energy and Industrial Strategy was also warmly welcomed. Leadsom impressed many in the City during her time as economic secretary to the Treasury and City minister. Before that she took on Bob Diamond of Barclays during the Libor scandal at the Treasury Select Committee hearings. In Iceland, she gained an ice maiden reputation after taking on ministers after the Icelandic banking crisis.

What can we expect her to do at BEIS ?  She, together with her new business and energy minister, Jo Johnson, have some big challenges ahead: deciding on the UK’s energy policy will be momentous following the extraordinary commitment to aim for a net zero carbon target by 2050. By far the most testing part of this will be deciding whether to back new nuclear as part of the mix and one of her first jobs will be to present the long-awaited White Paper on future energy policy.

Perhaps Johnson’s most fascinating decision was to appoint his former tormentor, Michael Gove, to the role of preparing for a no deal scenario. This brings Gove together with Dominic Cummings, the former Vote Leave campaigner, and David Frost, ex-Foreign Office EU mandarin, and suggests that the new PM is utterly serious about no deal.

It’s also rather astute of Johnson to put Gove, who is said to be the most worried about no deal, in charge. As one observer commented: “What we are seeing here is two quite separate teams working side by side. It makes more sense than having those negotiating with the EU also preparing for no deal. This way you get a stronger team.”

There was other good news helping the markets and bolstering Johnson’s “peddling of optimism”: recent figures on the UK exports of services, which includes all the professions such as law and consulting, intellectual property and R&D, rose by 5.8 per cent in the first quarter of 2019 to £68.7billion. Exports to Germany and France were up despite the sluggish eurozone economy. But exports were booming again with the US which is still Britain’s biggest customer for services and exports: up by £18.9billion. Hopefully, President Trump won’t notice too much when it comes to that free trade deal.

Maggie Pagano,
Executive Editor,
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