The British pound and UK financial assets will surge on a Boris Johnson victory – but the relief for the Brexit-ravaged UK currency will be short-lived, warns the CEO of one of the world’s largest independent financial advisory organizations.
The warning from Nigel Green, founder and chief executive of deVere Group, comes as sterling hits its highest level since April as Mr Johnson’s Conservatives hold polling leads ahead of Thursday’s general election.
In early Monday trading, the pound was recently up 0.25 per cent on the U.S. dollar, reaching a high of $1.318. It jumped by a similar margin against the euro, with one pound buying 1.1902.
Mr Green notes: “The bounce in the pound is caused by the increasing certainty of a Conservative majority being delivered by Thursday election.
“Should Mr Johnson be returned as PM, the pound can be expected to reach $1.35.
“A hung parliament would intensify current uncertainty – due to there being the possibility of another EU referendum and another Scottish independence referendum.
“The uncertainty would not only weigh on the pound but it would continue to dampen business investment which, of course, will drag on economic growth.”
However, the deVere CEO’s message does come with a warning.
“The pound’s relief rally will be short-lived. In the medium to long-term Boris Johnson’s Brexit agenda could come back to deliver another bloody nose to the currency,” he says.
“The serious work of negotiating a trade deal only begins on January 31. There is then only 11 months to achieve this. It will be a race against the clock. Should this mammoth and complex deal not be struck before the December 2020 deadline, the UK will be forced into adopting unfavourable World Trade Organization terms.”
He continues: “This uncertainty will be a large dark cloud looming over the pound throughout 2020, dampening any bounce.
“And should Mr Johnson ultimately fail to meet the tight deadline, the pound, UK financial assets and economic growth will be seriously impacted.”
Mr Green concludes: “Boris Johnson’s approach is likely to produce short-term gain but long-term pain for the pound.
“Investors can help shield themselves from the risks of market uncertainty and position themselves to capitalise on the opportunities through exposure to a broad range of assets, currencies and geographic regions.”