Once upon a time I was quite a political animal. That’s Politics spelt with a capital P, not a small one. As well as being chairman of our local Conservative branch, I went on to be chairman, and then president, of our constituency association, which had returned a Conservative MP since its formation well over a generation ago. But I did not bring politics into local organisations, even when I chaired our local Parish Council for close on 20 years.
Politics, after all, can be divisive. This seems something of an understatement when one considers the events of recent month and how they’ve played out amongst loyal Tory supporters. Personally I have no views I wish to share on this most unfortunate episode, despite having met Boris Johnson, who I did find both charming and impressive. My concern is more with whether there are any implications for investors and how best to position oneself for what is clearly an uncertain future.
As it happened, the news of Boris Johnson’s resignation as Prime Minister was initially greeted with modest enthusiasm in markets. The pound in particular ended a losing phase, with gains against the euro, though the dollar continues to retain international support as a safe haven currency. While concerns over the rising cost of living continue to bubble in the background, political developments have rather taken over the headlines in recent days.
But economic worries soon resurfaced, with news that retail sales are slowing rapidly and fears that a recession may lie just around the corner. Although our share market has not suffered too badly in the recent fallout, there has been something of a more serious readjustment of views in other major economies. The US suffered a fall of more than 20% in the first half of the year, with most of the damage occurring in the second quarter. They are now officially in bear market territory.
With the holiday season now upon us and Parliament about to go into recess, news is likely to be thin on the ground over the course of the next few weeks. True, we will start seeing first half results from those companies operating to a calendar year end, but it is likely to be the bigger economic picture that will dominate investor sentiment. We still have to wait a little while for confirmation of just how badly our economy has been affected by a slowdown in consumer activity.
A summer of discontent cannot be ruled out as workers in many sectors seek pay rises to combat the worse effects of inflation. This in turn could exacerbate the rise in prices which may well result in a hardening of the attitude of the Bank of England towards interest rate policy. For investors, a wait and see approach seems prudent. But whoever our next Prime Minister turns out to be, he or she will be in for an interesting time.