Show only key events Johnson is set to face MPs at PMQs at midday, after a YouGov poll showed two-thirds of Britons now want Boris Johnson to resign. Following yesterday’s cabinet shake-up and other resignations, Minister for Children and Families Will Quince resigned this morning, saying he would resign after an “inaccurate” briefing about the Prime Minister’s appointment of a politician was the subject of complaints. Daiwa economists say: Politics will continue to dominate the UK, with the majority of Britons wanting Johnson to step down. Construction PMIs will provide little distraction on the economic front After the resignation of two senior ministers yesterday – including Chancellor Sunak, whose departure raises the possibility of looser fiscal policy in the near term – over issues related to the core integrity and competence of prime minister, and A few more toddler resignations this morning, politics will continue to dominate the UK. While the Prime Minister may almost make it in the summer, he looks highly unlikely to see out the year in Downing Street, with changes to the Tory leadership rules likely to be triggered if he does not resign. And these heightened expectations of Johnson’s exit should support sterling. European stock markets are rallying after yesterday’s recession, caused by recession fears. London’s FTSE 100 is now trading 161 points higher at 7,189, up 2.3%. The German and French indices lead by more than 1.6% while the Italian bourse rose 1.5%.
Bank of England’s Cunliffe: Bank ‘will act’ to curb high inflation and avoid wage-price spiral
It follows more comments from Bank of England Deputy Governor Jon Cunliffe, who said this morning that the central bank “will act” to ensure high inflation is not embedded. Inflation in the UK hit a 40-year high of 9.1% in May and the Bank expects it to reach 11% in the autumn. The central bank aims for an inflation rate of 2%, and in response to the surge in prices it has raised interest rates five times since December. He told BBC Radio 4’s Today programme: It’s our job to make sure that as this inflationary shock passes through the economy, we don’t find that inflation is the new normal, the kind of built-in psychology. People can have confidence that we will act to ensure that this does not happen. Cunliffe also acknowledged the impact of the cost of living crisis and that the economy is slowing. What we expect is that the cost of living squeeze will really hit people’s spending and that will start to cool the economy, and we can see signs that the economy is already slowing down. He said most of the forces pushing up inflation came from abroad, as Russia’s invasion of Ukraine in late February sent energy and food prices spiraling – and that the Bank would act to avoid a wage-price spiral . These prices will not continue to rise forever, and as this shock wears off, the economic conditions in the country must be such that they do not allow the wage-price spiral to develop… and there we will do whatever it takes. The Bank has been criticized for being slow to act to curb soaring inflation, but Cunliffe said: We have increased percentages in every meeting for the last five meetings. I don’t think anything like this has ever happened in the history of the monetary policy committee. Updated at 08.33 BST The UK’s new chancellor, Nadhim Zahawi, said this morning that he will look at ways the country can remain “competitive and dynamic” with its European neighbors and the rest of the world. Asked about taxes, he said the prime minister wanted to ensure the government had fiscal discipline and he shared that view. He told the BBC: Of course, I will look at where else I can make sure that the economy remains competitive and dynamic with our European neighbors and the rest of the world as well. Nothing is off the table.
Markets open higher after Tuesday’s slump
Stock markets in London and the rest of Europe opened higher after yesterday’s losses. London’s FTSE 100 index is trading 92 points higher at 7,118, up 1.3%, after falling nearly 3% yesterday. Germany’s Dax rose 1.6%, France’s CAC opened 1.3% higher and Spain’s Ibex and Italy’s FTSE MiB rose 1.1%. Updated at 08.13 BST JPMorgan economist Allan Monks says events could move quickly: Both Chancellor Sunak and Health Secretary Javid resigned, putting significant additional pressure on the Prime Minister whose position was already weakened after narrowly winning a confidence vote last month. Current party rules stipulate that Johnson cannot face another no-confidence vote until next summer. But the main danger now is that either those rules will be changed to force a new vote or Johnson will be pressured to step down voluntarily. Events could move very quickly, with a Conservative leadership contest potentially fielding a new prime minister in the next few months or so – ahead of the party’s annual conference in early October. Monks also addressed fears of recession. While there are several factors behind the resignations, one Mr Sunak highlighted was differences of opinion over the direction of fiscal policy ahead of a joint economic speech planned by the chancellor and Johnson next week. As recession fears mount in the face of soaring gas prices and reduced supply, pressure will remain for the next chancellor to provide at least further targeted support. However, the chances of a more politically motivated income tax cut appear to have receded. Our forecast shows a slight contraction in GDP on average from the second to the fourth quarter, which future fiscal announcements this year could still lean towards. However, the main risk now is that the weight of the burden on the economy is undermining business confidence and hiring intentions, which have so far remained strong and underpinned the recovery to date. It’s worth noting that talk of a recession is based on expectations rather than any discernible evidence in the latest business survey. Vacancies remain elevated despite the recent decline, and an upward revision to June’s PMI today from 53.1 to 53.7 leaves the survey some way from recessionary levels and consistent with growth of 1.5-2.0% based on historical comparisons. The combination of recent events further weighed on currency and equity markets, underscoring the still bilateral nature of the risks facing the monetary policy committee. The question is whether growth headwinds will do some of the MPC’s work for them – potentially forcing the Bank to back away from earlier hints of a more aggressive monetary policy response and instead opt to continue on a more gradual path. However, unless the labor market weakens substantially in the face of today’s headwinds, pressure will remain on the Bank of England to continue tightening.
Introduction: Pound hits as Johnson’s future in doubt, markets brace for months of uncertainty
Good morning and welcome to our rolling coverage of business, the global economy, financial markets and the cost of living crisis. UK stock markets are expected to post a modest recovery today after their worst one-day performance in three weeks yesterday amid recession fears as investors brace for months of political uncertainty. Boris Johnson’s prime ministership hangs by a thread after the chancellor, health secretary and a string of Tory aides resigned in dramatic fashion last night, dealing a crushing blow to his power following a series of self-inflicted scandals. Following the resignations of Sajid Javid, the health secretary, and Rishi Sunak, the chancellor, they were replaced by Steve Barclay and Nadhim Zahawi (previously the education secretary) respectively. And Michelle Donelan became the new Education Secretary. Equity futures suggest the FTSE 100 could rise more than 1% when London opens, a partial recovery from yesterday’s 2.9% drop. The political drama added to the selling pressure on the pound. Sterling already struggled yesterday amid recession fears and is currently trading at a two-year low of $1.19, down 0.3% on the day. The dollar, considered a safer currency, benefited. Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says: The political turmoil in the UK certainly added to the selling pressure on sterling, however the reason why the cable slipped below the 1.20 mark was the boom in the US dollar, broadly speaking. Stock markets in London and across Europe were hit by growing worries about a European recession yesterday, and the euro fell to a two-decade low as rising gas prices added to pressure on the European economy. European futures are off to a positive start this morning, but gains remain fragile. We took a look at the favorites to succeed Johnson as Prime Minister. And here’s what other newspapers say: Meanwhile, Bank of England deputy governor Jon Cunliffe said the central bank “will act” to ensure the recent rise in inflation does not feed into the economy. He told BBC radio this morning: It’s our job to make sure that as this inflationary shock passes through the economy, we don’t find that inflation is the new normal, the kind of built-in psychology. People can have confidence that we will act to ensure that this does not happen. THE AGENDA
8.30 am BST: Eurozone S&P World Construction PMI for June 9.10 am BST: Bank of England chief economist Huw Pill speaks 9.30 am BST: UK S&P Global/CIPS Construction PMI for June (forecast: 55) 10 am. BST: Eurozone retail sales for May 1.30 p.m. BST: Bank of England Deputy Governor John Cunliffe speaks 2.45 pm BST: Final US S&P Composites and Services PMI for June 3 p.m. BST: US ISM non-manufacturing PMI for June (forecast: 54.3)
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