TD Securities believes that British Prime Minister Boris Johnson will be gone by the end of this year, if not by the end of this week. And with Johnson’s exit, the new Chancellor could loosen fiscal policy, which could drive the Bank of England to hike interest rates higher.
______________________________________________________________________________________________
- Boris Johnson’s future is on the line. We now expect him to be gone by the end of the year, if not by the end of the week.
- If his new Chancellor has time to implement new fiscal policy, we expect lower taxes with the corporate tax hike cancelled and a likely temporary VAT cut. The BoE may be able to hike faster against this backdrop.
- Rates: Gilt markets have witnessed much more volatility during Brexit, so we doubt this event will be a game changer for directionality. Active fiscal policy should support active rate hikes from the BoE. We therefor favour a flattening bias for 5s30s Gilt curves.
