The Pound Flashes a Warning Signal for Boris Johnson

The pound has been signaling concern about the direction of the UK economy even before the latest political earthquake hit Prime Minister Boris Johnson’s government.

The currency, which serves as a sort of weather vane of investor sentiment, just finished its worst quarter since 2008. Its slide is continuing, threatening to break through the lows reached in the depths of the pandemic.

Down about 12% against the dollar since the start of the year, the pound has swung wildly during Johnson’s premiership. That reflects the Bank of England falling behind the US Federal Reserve in tightening monetary policy and debate about the nature of the deal the UK would eventually secure on its exit from the European Union. Also in the mix are the pandemic, the end of lockdown, war in Ukraine and a global inflation crisis.

$1.45

$1.40

$1.35

$1.30

$1.25

$1.20

$1.15

$1.10

13 JUNE 2022

Markets plunged on renewed inflation fears, and the pound suffered amid bets the US would hike rates far quicker than the UK. Later that week, the Fed raised rates 75 bps, the biggest move since 1994, while the BOE hiked by just 25 basis points.

24 DECEMBER 2020

The UK’s Brexit trade deal was announced

20 MARCH 2020

Markets plunged into turmoil by the pandemic, with investors’ dash for cash hurting assets of all types. The pound’s low comes early on March 20, before Chancellor of the Exchequer Rishi Sunak announced his furlough plan.

4 JULY 2020

The pound gradually recovered throughout the summer as the UK loosened restrictions. In early July, pubs reopened

22 APRIL 2022

The pound plunged as reports suggested the economic recovery was faltering

9 SEPTEMBER 2020

UK reimposed rule of 6 on socializing as cases surge

15 OCTOBER 2019

The pound jumped on hopes the UK and EU were close to a Brexit deal

1 JUNE 2021

Pound reached its peak during Johnson’s tenure

22 FEBRUARY 2021

Pound was boosted after Johnson declared the end of the pandemic was “in sight” for England, as he set out his aim to ease lockdown rules in a series of stages over the next four months

5 AUGUST 2021

The pound gradually lost ground over the summer as economic and inflation concerns mount. On Aug. 5, the BOE says it sees a “modest tightening” ahead.

23 JULY 2019

$1.24

Boris Johnson became prime minister

19 DECEMBER 2020

Johnson announced fresh lockdown measures, culminating in another full lockdown being imposed in January

8 DECEMBER 2021

UK imposed work from home order thanks to concern over the Omicron variant

24 FEBRUARY 2022

Russia’s invasion of Ukraine hurt riskier assets

13 DECEMBER 2019

The pound spiked the day after the UK election that saw Johnson win a landslide, provided some certainty after months of Brexit stalemate

5 MAY 2022

BOE pushed rates to 1% and delivered a warning of a recession and double digit inflation

6 JULY 2022

$1.19

Chancellor Rishi Sunak, Health Secretary Sajid Javid and other ministers resign

6 JUNE 2022

Johnson survived a vote of no confidence

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The latest turmoil saw Johnson’s finance and health ministers quit over concerns about sleaze in his government, forcing a reshuffle of his top team Tuesday night. For the pound, the direction is increasingly clear. Slower growth, rising prices, dwindling trade and continued political upheaval are making Britain and the pound less valuable for investors.

Worse may be coming. When asked what the currency would do first—sink further to $1.15 or rebound to $1.35—about 76% of respondents in Bloomberg’s June MLive Pulse survey opted for the more gloomy outcome.