Thin Ice for Johnson following 13 Government Resignations.

Thin Ice for Johnson following 13 Government Resignations.

The stability of Boris Johnson’s leadership faced perhaps its greatest challenge to date yesterday evening as Chancellor Rishi Sunak and Health Secretary Sajid Javid quit the government having lost their confidence in him.

Subsequent resignations included the Tory vice chair Bim Afolami whose loss in confidence was announced live on television when he stated that he could not “defend [Johnson’s] behaviour any longer”. This morning, further resignations have trickled through including Laura Trott the MP for Sevenoaks stood as the parliamentary private secretary to the Department for Transport and William Quince, the Parliamentary Under Secretary of State at the Department for Education. Robin Walker, the minister for school standards also handed in his resignation shortly before 10:00 this morning brining the total number of government resignations to 13.

While Johnson shows no sign of resignation, there are mummering’s within Westminster that members of the PCP will try to alter the 1922 Committee protocol for tabling motions of no confidence. Under current protocol, a leader is exempt from a no-confidence motion for one year after surviving a prior one, however given last night’s developments pressure will be mounting on the committee to change the long-standing rules. Of course, Johnson recently survived a vote of no confidence after 211 MPs voted in support of his leadership against to 148.??

Nadhim Zahawi will serve as the new Chancellor of the Exchequer having served as Education secretary since September 2021 and the vaccine minister prior to that. Zahawi’s background prior to Westminster included co-founding You-Gov before moving on to be the chief strategy officer for Gulf Keystone Petroleum. The primary question now is the extent to which Zahawi’s tenure will alter the growing tension which existed between No.10 and No.11 in relation to fiscal policy, as the latter was generally seen as a much stronger advocate of fiscal tightening relative to the former.

While Johnson’s emergency reshuffle demonstrates that he will attempt to weather the storm, it is evident the fall out of the Chris Pincher scandal means that the PM is treading on ever thinner ice.?

Gas Markets Ease as Norwegian Strikes are Called Off

The Norwegian Government have intervened to prevent industrial action being taken place across the country’s oil and gas fields. This assuages fears that the UK’s gas supplies could have been completely cut off from Norway over the weekend, exacerbating concerns over energy insecurity. The significance of such a hindrance to supplies is hard to understate given that some 77% of all gas imports into the UK come from Norway, with the UK importing 50% of its total usage. The apparent cancellation of the strikes also helped ease concerns across the continent, particularly in relation to countries’ attempts to fill natural gas storage to 80% capacity before the onset of winter. Similarly to the UK, Europe is heavily reliant on Norwegian energy with the Nordic country accounting for the second largest level of exports to the continent after Russia.??

The news saw TFF futures – the European benchmark for gas futures – slip from yesterday’s 5 months high having fallen from over 175 euros per megawatt-hour to under 155 euros per megawatt-hour this morning. Progress has also been made in German vis-à-vis securing a bailout package to rescue the Düsseldorf based energy giant Uniper which has struggled in recent months given their reliance on Russian gas. It is believed that a bailout package would have to amount to around €9bn and given the ever-increasing issue of German energy security, investors will be keeping a close eye on these developments.?

Concerns Raised Over Low Levels of Household Savings

Yesterday, Charlie Nunn – the head of the UK’s largest high street bank – stated that "80% of individuals and UK customers and families have less than ￡500 pounds worth of savings in their current account and their savings account”. While the Lloyds chief highlighted that savings may lie elsewhere and in other asset classes, it was indicative of the concerns over whether UK households will be able to whether the storm of a looming recession. Indeed, we recently learnt that household incomes in the UK have fallen for four consecutive quarters meaning that over Q1, incomes were 1.3% lower than a year ago. This continued slide in real incomes represents the longest fall since records began. Moreover, given that this print covers the first quarter of 2022 – before the rise of NI contributions and the lifting of the energy price cap – it is expected that given the prevalence of inflation, real incomes will continue to fall.?????

Wider Debt Concerns

In the interest of wider context Nunn’s concerns come as it was recently revealed that global private debt surged by 13 percent of the world's gross domestic product in 2020. This also means that total debt across the world is now stands at a mammoth 250%. Hence, given rising interest rates, the increasing cost of servicing this debt will cause a drag on growth with the IMF expecting it to hinder output by 0.9% over the next three years in developed countries and 1.3% in developing countries.

Today’s Primary Data

This morning month-on-month retail sales across the Eurozone came 0.2% against expectations of 0.4% demonstrating the level of impact that the rising cost of living is having on consumer spending. Later this evening all eyes will be focused on the publication of the FOMC’s minutes which will follow ISM Services PMI data for June coming out of the States where the market is predicting a print of 54.5 – a slight dip from May’s print of 55.9.