Written by: George Prior
The new British Prime Minister, Liz Truss, is helping to sink the beleaguered pound even further – and the trajectory is likely to only get worse for the UK currency, warns the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.
The bleak warning from Nigel Green of deVere Group, which has $12bn under advisement, comes as it is announced Truss has won the Conservative party leadership and becomes Boris Johnson’s successor as British Prime Minister from Tuesday.
The deVere CEO notes: “Already one of the worst-performing currencies of the year, the pound on Monday dropped to the weakest it’s been since 1985.
“Of course, part of the reason is that Russia has indefinitely shut down the Nord Stream 1 gas pipeline to Europe as the G7 agrees to impose a price cap on Russian oil exports.
“However, there’s also no getting away from the fact that the UK currency is going to react negatively to the country’s new Prime Minister – even if there’s a brief relief bounce on the fact that at least the leadership contest is over. Any honeymoon will be extremely short-lived.”
He continues: “Truss’s unfunded, pie-in-the-sky tax cuts and massive spending plans mean big rises in borrowing.
“They blow an enormous £170bn hole in Britain’s finances, and would push up inflation by increasing money growth, prompting more aggressive interest rate increases from the Bank of England as it struggles to control inflation, which is still at a 40-year high.”
Truss’s “populist agenda”, says Nigel Green, including the UK’s tough stance on the relationship with the EU and single market access, and issues with the Northern Ireland Protocol, are also “driving negative sentiment for sterling.”
In an earlier comment, the deVere chief said that the new PM’s hint that she would demand a review of the Bank of England’s mandate was also weighing on the pound.
“We expect the pound - and the gilt market - to react badly to any sense of growing political interference. The politicization of the UK’s central bank will spook markets,” he affirmed.
The deVere CEO urges those with heavy exposure to UK financial assets to “review their portfolio as it’s time to buckle up.”
He concludes: “Truss is helping to tank the pound and we expect it to get a lot worse for the UK currency, before it gets better.”