Where will the British economy go in the post-Jensen era?

British Prime Minister Jensen has resigned as leader of the Conservative Party following a severe political crisis, sparking a race for a new prime minister. But some, both inside and outside the ruling Conservative Party, are uneasy about the prospect of Jensen staying in power, given his plummeting political popularity. The impact on the pound and financial markets will be closely watched as the political outlook in the UK remains uncertain. Sterling and the FTSE 100 both rose after news of Jensen's resignation, holding up well throughout the session.

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A rate hike by the Bank of England could be good for the pound. A new pro-growth UK government will be good for the pound, so policies proposed by Jensen's contender will be closely watched. Fiscal stimulus will mean an increase in the number of times they think the Bank of England is about to raise interest rates. The labour market is important because the UK labour force participation rate has fallen sharply since the pandemic as workers opted for early retirement and foreign workers left the country.

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With the annual rate of CPI on the verge of surpassing 11% in the autumn, the Bank of England may abandon its cautious stance for now and raise rates by half a percentage point to 1.75% at its August meeting, but this may only be a one-off before returning to A standard rate hike of 25 basis points. GBP/USD remains under pressure in the current environment. This means that the path of least resistance for GBP/USD is lower, at least from a fundamental standpoint.

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Jensen's resignation as UK prime minister may give the pound a limited respite, as the woes of the UK economy may resurface. Jensen will remain in power until the Conservative Party elects a new leader, which will take about six weeks. In the context of the dollar continuing to rise, attention should be paid to the UK's important data including GDP and CPI next week, which may exacerbate concerns about the fundamentals of the pound. BoE Governor Bailey will also speak next week, giving us an opportunity to gain a deeper understanding of the current state of the economy and even influence the market pricing of the BoE's policy rate. From a technical point of view, GBP/USD failed to break above the 1.2080 level, indicating a strong downtrend.

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"The political situation in the UK in the coming months is difficult to predict," Kallum Pickering, senior economist at Berenberg Bank, said in a note on Wednesday. Financial markets were likely to experience turmoil in the months ahead, he said. , is likely to continue into the fall. “If the fight to oust Jensen becomes more chaotic and a tumultuous leadership battle ensues, the recent increase in uncertainty could add further downward pressure on UK risk markets and sterling.”