In the past week, as 160,000 Conservative Party members cast their ballots to elect the country’s next leader, both Johnson and rival Jeremy Hunt hardened their stance on the Irish backstop clause insisted upon by Brussels, therefore increasing the likelihood of a no-deal departure.
In a recent note, Berenberg senior economist Kallum Pickering raised the risk of a hard Brexit — in which the U.K. exits both the EU’s customs union and its single market to trade on World Trade Organization terms — to 40%, making it Berenberg’s base case.
However, as Pickering pointed out, Johnson has a reputation for adapting his rhetoric to changing tides of political sentiment. A Conservative member of the House of Lords, Michael Heseltine, once described Johnson as “a man who waits to see the way the crowd is running and then dashes in front and says ‘follow me’.”
Speaking to CNBC Monday, Pickering said an unresolved Brexit was like a “kidney stone lodged in the abdomen of the British economy,” and projected greater sterling weakness until a resolution is found.
In a further note Tuesday, Pickering suggested that Johnson’s promise to scrap the Irish backstop from the Withdrawal Agreement may just be a high-risk negotiating strategy, with a low chance of success, to push for compromise from Irish Prime Minister Leo Varadkar to accept a half-way deal. If the EU refuses Johnson’s demand, Pickering predicted, moderate British lawmakers could move to thwart a no-deal exit, setting the stage for a “major showdown in Parliament” in the fall. This could lead to a further Brexit extension, a snap election or a second referendum.
“While Johnson may be forced to take a more pragmatic line eventually, we do not expect him to use soft words on Brexit in his first speech,” Pickering wrote on Tuesday.
“In the not-unlikely event that he doubles-down and appears to harden his Brexit stance further, U.K.-oriented equities and sterling would likely react negatively.”
With Boris Johnson becoming UK leader, experts are predicting more weakness for the pound – CNBC