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British pound faces ‘perfect storm’ despite Boris’ narrow win

,ACCORDING to the CEO of one of the world’s leading independent financial advice, asset management, and fintech firms, the British pound, which is already exhibiting ’emerging market’ characteristics, is in for a tough time ahead amid political turmoil in the UK.

Despite sterling’s gains against the dollar and euro after Boris Johnson survived a No Confidence Vote on Monday, deVere Group’s Nigel Green has issued a warning.

It also comes after Bank of America Corp. strategists urged investors to protect against a “existential” sterling crisis last week, as the British pound faces difficulties similar to those witnessed in emerging nations.

Nigel Green says: “Johnson may have won the No Confidence Vote, but only by a small margin; it was not a convincing win – 41% of his own MPs voted against him.

“Modern history teaches us that his time in office is likely to be coming to an end. It now seems more unlikely that he will get the opportunity to fight the next general election.”

When his predecessor, Theresa May, faced a confidence vote in 2018, she received 63 percent of the vote, but was forced to resign within six months.

Michael Heseltine received 40.9 percent of the vote in 1990 when he ran against Margaret Thatcher for Prime Minister. The competition had to proceed to a second round because she fell short of the minimum 55 percent to win outright. She would continue to fight, but the “guys in grey suits” eventually persuaded her to resign.

“If Johnson is, in effect, a dead man walking, investors need to prepare for potentially choppy times ahead for the British pound.

“Whilst sterling has not yet been immediately negatively affected by the latest twists and turns in Westminster, we believe that it is likely that there will be a leadership challenge before the next election,” says the deVere Group CEO.

“When names are put into the ring to become the next leader, and policy agendas of the frontrunners are known, the pound can be expected to become highly volatile – just as it did during the testy Brexit negotiations.

“The issues laid bare by Johnson’s possible successors that will impact the pound would include the UK’s relationship with the EU and single market access, fiscal stimulus and the Northern Ireland protocol, amongst others.”

He goes on to add that a leadership contest “combined with well-flagged, international and domestic concerns” that the Bank of England is in danger of losing its mandate as it struggles to contain inflation, which is at its fastest rate in four decades, could create the “perfect storm for the pound.”

Nigel Green concludes: “Johnson has suffered a major Tory rebellion. Despite him narrowly winning the No Confidence Vote, and now, under current rules, being immune from a leadership challenge, he’s clearly in political hot water.

“The already beleaguered pound will likely become, yet again, an important bellwether of political events. Investors should brace themselves and position their portfolios accordingly.”

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