Prime Minister Boris Johnson

July 29, 2019

It came as no surprise that Boris Johnson became the new Conservative leader and Prime Minister last week, having led in the polls from Theresa May’s resignation. However, last week saw a huge turnover in ministers with key changes at Chancellor, Home and Foreign Secretary. The combination of Boris at PM and Sajid Javid Chancellor will undoubtedly lead to increases in public spending and a reduction in taxes, based on the promises in their leadership campaigns. Indeed, after only a few days in office, the plan to recruit 20,000 new police staff was announced, illustrating the scale of their ambition. There is scope to borrow to fund some of the spending plans and tax cuts given the low-interest rates, and the hope is that the increased economic growth will take some of the repayment burden. Current estimates are that Boris’ promises would equate to a fiscal loosening of £20bn (or 0.9% of GDP), funded, at least initially, from increased borrowing. With a new leadership team, there will no doubt be announcements weekly on new policies and Brexit plans.


Quarter two GDP figures for the US were released last week. This showed that the economy grew faster than expected from April to June, at an annualised rate of 2.1%. This was down from the 3.1% posted in the first quarter but higher than the 1.8% expected. Growth was driven by consumption, erasing fears that the trade war and a slowing jobs market has impacted households. Negative effects came from a drawdown on inventories and a widening trade deficit. While imports edged higher by 0.1%, exports fell 5.2%, subtracting 0.7% from overall growth. Elsewhere, revisions to personal income data indicated that consumers have a greater ability to spend than previously assumed, meaning that the rally in spending may not end any time soon. The US economy continues to surprise observers, many of whom in December were predicting the country would be in the midst of a recession by now.

Debt Ceiling Agreed

Other encouraging news from the US came when Congress surprised markets by agreeing to raise the debt ceiling, averting a potential crisis in the next few months. The prospect of another standoff in September and a possible brake on spending in October was an increasing concern of markets following an acceleration in government borrowing in recent months. The increase in the cap illustrates the loss of any influence that fiscally conservative Republicans had over the President, with the Federal budget deficit set to reach $1tn next year, doubling the 2016 figure. Markets are still sanguine that there is not a debt problem, however, with debt to GDP on track to reach over 100% within the next ten years, the prospect of default may begin to be priced in.

Market Data

  % 1w* % 1m*
UK 0.58% 1.94%
US 2.62% 6.38%
Europe ex UK 1.16% 2.45%
Japan 0.62% 3.83%
Emerging Markets 0.17% 2.94%
Oil 2.75% -0.63%
Gold 0.48% 2.84%