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As Johnson departs, will economic chaos ensue?

There are no prizes for pointing out that the departure of Boris Johnson from No. 10 comes at a time of economic crisis for the UK.

Many in business are worried about the short-term damage a change in Downing Street could cause.

Anne Boden, boss of digital bank Starling, warned that political volatility was causing “uncertainty” for businesses as she voiced concerns that “the government’s business reform agenda could be blown off course”.

Boden said: “I would be sorry if current circumstances led to a roadblock on some key and much-needed legislation and reforms. But a bigger issue is that what we have now is creating uncertainty. And that makes it difficult for individuals and businesses to make well-informed decisions.”

Dermot O’Leary, Chief Economist with Goodbody, said in normal economic circumstances such a political earthquake would not have too much of an impact because households and businesses “would just get on with it”.

He said: “But, of course, we are not in normal economic times and key decisions would have to be made by the UK government over the next three to four months and this political uncertainty potentially impacts on those.”

He said fiscal measures will be needed to deal with the cost of living crisis, the Northern Ireland protocol, and energy security for the coming winter.

However, others are of a different opinion. A change of Prime Minister might not have a seismic impact on the economy, said Costas Milas, Professor of Finance at the University of Liverpool – although there will be consequences. In fact, he said the PM’s departure would likely be beneficial in the medium to long term.

He said: “The recent rise in economic policy uncertainty following the chaotic events related to the end of Johnson’s premiership is actually very mild compared to events like the 2016 Brexit referendum or the beginning of the pandemic in March 2020.”

Milas added: “The resignation of Johnson should lead to more normal functioning of the government in the UK, paving the way for less economic policy uncertainty. This is clearly a good thing. Uncertainty can have an economic effect for up to two years. Given the current outlook for the UK economy, we need all the certainty we can get.” However, the outlook is not particularly rosy in the short term. Milas cited research from the academic group Economic Policy Uncertainty (EPU) that showed rising uncertainty about UK economic policy can damage GDP growth for up to 12 months. Whatever the outcome of the Conservative Party leadership election, uncertainty will continue over the future direction of the government’s economic policy.

If your business has been affected by the current economic climate, and you’re facing difficult choices, our business rescue and insolvency experts can help to find a solution to your challenges. Call us on 01455 555 444 or email [email protected] and we will call you back.