Boris Johnson has succeeded Theresa May as Prime Minister after comfortably winning the Conservative leadership contest. Just over 92,000 party members voted for Boris while his rival, foreign secretary Jeremy Hunt, came a distant second with 46,656 votes.
Brexit will dominate the new Prime Minister’s agenda for the foreseeable future. During his campaign, Boris claimed he is determined to meet the latest Article 50 deadline of 31st October and leave the EU without a deal if necessary. However, he also said that he would prefer to secure a deal and suggested the chances of leaving without one were ‘a million to one’. Whether Boris maintains his hardline rhetoric once he is in office remains to be seen.
The margin of Boris’s victory gives him a strong mandate among Tory party members to pursue his vision of Brexit, but he still faces deadlock in the House of Commons. His majority may even shrink if the Conservatives lose the upcoming byelection in Brecon and Radnorshire.
The new Prime Minister will have to deal with several tests unrelated to Brexit in the coming months, such as his debut on the international stage at the G7 meeting on 24th August. He also pledged to increase government spending during his leadership campaign, including an income tax cut which would raise the higher rate threshold to £80,000. Whether or not he can deliver this policy may depend on how Brexit talks progress. Other tests on the horizon include a Comprehensive Spending Review for the 2020-21 financial year and a Queen’s speech.
Returning to the most pressing issue of Brexit, the Omnis investment team believes there are four scenarios as things stand:
• Boriss ticks to his pledge to leave the EU on the 31st October even if the two sides fail to agree a deal (the markets believe would be the most challenging outcome for the UK economy);
• He reopens negotiations with the EU and secures minor amendments to the existing withdrawal deal. Parliament backs it and the UK departs on 31st October;
• Parliament forces a vote of no confidence in the Prime Minister if he pursues a ‘no deal’ Brexit, which would probably lead to a general election;
• The UK and the EU agree to another extension to the Article 50 deadline.
Sterling continues to be sensitive to Brexit developments. It weakened against the US dollar during the leadership campaign as the markets viewed Boris’s commitment to the next Article 50 deadline as increasing the likelihood of a hard Brexit. Sterling’s reaction to his victory has been relatively muted, briefly rallying against the US dollar immediately after the announcement before stabilising throughout the rest of the day.
As always, the Omnis investment team will monitor developments. The Omnis Managed Portfolio Service (OMPS) and Graphene portfolios are designed to weather short-term market fluctuations like Brexit. They are globally diversified across a range of asset classes that aim to deliver returns over the long-term. Both sets of portfolios should be able to cope with any of the scenarios outlined above. Similarly, Omnis funds are also diversified – for example, each of the UK equity funds is invested in companies closely tied to the UK economy and others with more international exposure.
Furthermore, the OMPS and Graphene portfolios are designed to match the investor’s attitude to risk. The Adventurous portfolios accept a certain level of short-term volatility in pursuit of potentially greater longer-term returns, while Cautious portfolios aim to deliver returns that are less sensitive to short-term market fluctuations.
If you have any questions about your portfolio, speak to your Openwork adviser.