Brexit Bulletin: Sunak Rises in Cabinet Rishuffle

(Bloomberg) --

What’s Happening? Even Boris Johnson’s “stonking majority” can’t stop the dramatic news from Downing Street.

Just a few weeks ago Sajid Javid was repping for the U.K. at the World Economic Forum in Davos and appearing tie-less in a cafe to talk about his “economic vision” for Britain. Today he’s out of a job, resigning after a face-to-face row with Prime Minister Johnson inside 10 Downing Street—and the country’s economic policy is in disarray.

Johnson’s office could not confirm that the budget will go ahead as planned on March 11, or that the government will keep to the fiscal rules Javid had announced, requiring day-to-day spending and revenue to be in balance within three years. Even with reports of tensions growing in recent weeks the departure was an abrupt one, and made Javid the shortest-serving Chancellor of the Exchequer for 50 years. 

His replacement is Rishi Sunak, a 39-year-old who worked with Javid at the Treasury and, perhaps crucially, is more avowedly pro-Brexit than his former boss. (Incidentally, Sunak is a Goldman Sachs alumnus while Javid previously worked at Deutsche Bank.) As Alex Morales, Joe Mayes and Jessica Shankleman report, back in 2017 he co-authored an article highlighting five benefits of Brexit, including striking new trade deals, improving regulation and being free of EU state aid rules.

In a research note, Capital Economics pointed to Sunak’s voting record, which it says shows he is “an ardent Brexiteer” who supports reductions in corporation tax and cuts to capital gains tax. Sunak has also gone on the record as favoring infrastructure investment, a position likely to align him with Johnson and his key adviser Dominic Cummings. 

The pound rallied on the news, trading up 0.7% to $1.3053 as of 4:00 p.m. in London, with speculation rising that fiscal stimulus could be around the corner. What shape that will take is not yet clear.

Beyond Brexit

Brexit in Brief

Negative to Negative Rates | Mark Carney said he’s lucky he never had to cut interest rates below zero as Bank of England governor because they would have damaged the U.K. “I’m feeling fortunate that at least it looks like I’m going to get out without having negative rates,” the outgoing BOE boss said in a Bloomberg Television interview. “I’m not a huge fan.”

Mystery Man? | While the Johnson government undergoes its first spasm in office, Labour’s would-be leaders are still sparring. Elaine Ashton of BuzzFeed profiles front-runner Keir Starmer, the human rights activist who became a top prosecutor, and says it’s not clear what kind of leader he would be.

Pain for the City | These days, financial regulation seems like the 21st-century trade equivalent of a military provocation, and the current bout of Brexit hardball is bad for the City of London, Lionel Laurent writes for Bloomberg Opinion.

Luxury is Back | Bankers and fund managers are buying top-end London homes at a rate unseen since 2013 as concerns about the city’s post-Brexit future recede.

Revenge of the Middle Class | Why did comfortably well-off middle-class professionals vote for Brexit, Trump and Salvini? Simon Kuper in the Financial Times investigates the rise of the commuter-belt anti-elitists.

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