A potential change of prime minister in the UK would not have an immediate impact on the business environment, but the softer stance on the Northern Irish border will likely alleviate some of the mounting risks posed by earlier threats to suspend parts of the Brexit agreement. Fiscal policy is likely to become more predictable, but businesses are unlikely to see major shifts in terms of tax policies or government spending, and they should still be prepared for the increase in corporate tax to 25% from the current 19% in 2023.
Overview
The ongoing political scandal over Prime Minister Boris Johnson’s conduct and social gatherings at Downing Street during the peak of the pandemic continues to threaten a backbench rebellion. The release of the Sue Gray report and the beginning of a police investigation into the matter are likely to further fuel internal party discontent. The prime minister’s low popularity threatens the party’s performance in the May 2022 local elections and is a source of major concern for local Conservative councilors.
Our View
The likely damning report will once again reignite internal tensions within the ruling Conservative party despite efforts to keep backbencher MPs in check. The prime minister’s own fall in popularity is a further cause for concern, and should he survive the likely rebellion, the upcoming local elections and the elections in Northern Ireland are likely once again to increase pressure on him to resign. We maintain our base case that in the current situation, the prime minister’s position is unsustainable, and he is likely to resign in the upcoming month. However, a change in leaders is likely to boost the Conservative party’s support and will signal some upsides for the market, such as a quicker resolution to the ongoing EU/UK negotiations over the Northern Irish border.
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