Money markets did not take a disorderly departure seriously, but do now. So should Johnson

British holidaymakers heading abroad for their summer holidays might not thank him for it, but the fall in the value of the pound to its lowest level in 28 months is evidence that Boris Johnson’s Brexit strategy is having an impact.

The currency markets never took the idea seriously that the UK would leave the EU without a deal when Theresa May was prime minister. That has changed in the past five days as the new government has rammed home the message that the 31 October deadline for departure is set in stone.

Johnson believes that the UK has to show it is ready for no deal to get an exit agreement that has a chance of getting through parliament. But so far the EU has shown no sign of changing its stance that there can be no reopening of the withdrawal agreement signed by May. The pound’s current level – at risk of sliding below $1.20 against the US currency – is the result.

No-deal Brexit: how likely is it and what would be the impact? Read more

As Guy Foster, head of research at wealth manager Brewin Dolphin, put it: “The prime minister’s negotiating strategy revolves around making the market’s most-feared outcome look like his preferred outcome. Hence we are seeing a lot of weakness in the pound.”

The chances are that the pound could go lower before it bottoms out. No serious negotiations appear to be in prospect for the next month and the government’s strategy relies on the EU softening its stance as the clock ticks down to the Brexit deadline.

Nor are any of the usual weapons for shoring up sterling available. The Bank of England is not going to intervene in the currency markets to buy pounds when ministerial rhetoric is pushing the exchange rate lower. Higher interest rates are not an option either because the economy is weak.

There are two big risks for the government. The first is that an intensification of the selling pressure on the pound means that Johnson blinks first in his standoff with Brussels. A softening of the Number 10 line on Brexit would see the pound gain on the currency markets but force Johnson to eat a big helping of humble pie.

No, a falling pound is not good. It’s a sign of weakness and decline | Dan Davies Read more

The second risk is that the fall in sterling cuts short the new prime minister’s honeymoon by pushing up the cost of imports. The effect of that would be to drive inflation higher and erode growth in living standards.

Many in the currency markets think the impasse between the UK and the EU will only be ended by Johnson calling a general election. A squeeze on living standards caused by a depreciating pound would make it harder for Johnson to secure his own mandate – as May found to her cost in 2017.

Centrica’s patience had run out

Like the managers of football clubs, the chief executives of FTSE 100 companies are judged by their results. And the results that matter are the share price, the dividend and the company’s market capitalisation.

Iain Conn joined Centrica in January 2015. Since then, the company’s share price has fallen by 70%, its stock market value is a quarter of what it was, and – following a thumping pre-tax loss in the first half of 2019 – its interim dividend has now been cut by 58% to 1.5 pence a share.

Add in the loss of customers to the plethora of new energy suppliers that have sprung up in the past five years and it came as no surprise to learn Conn is leaving the company that owns British Gas next year. The patience of the board – and the company’s shareholders – has run out.

Conn’s pitch is that he has totally restructured the company since he took over, and there’s truth in that. Centrica is no longer a vertically integrated business that both generates and supplies energy. It has sold off large power plants, got out of nuclear and instead concentrated on consumer-facing services, such as the Hive, a smart thermostat app. It has taken time but there is evidence that the loss of UK domestic energy supply accounts has halted. Its US operations are successful.

It is also reasonable for Conn to point out that recent business conditions have been challenging. The company has been beset by a number of headwinds, the most significant of which has been the government’s energy price cap.

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But pointing to the problems created by the company he inherited is a bit like a football manager bemoaning the fact that his predecessor left him with a lot of dead wood. And blaming market conditions for poor performance is the equivalent of pointing to a long injury list for a run of bad results.

Conn says he will leave Centrica in a better place than he found it but it will be up to a new chief executive to prove whether he is right. And, let’s face it, in the more brutal world of the Premier League he would have been out long ago.

Good CV, wrong passport

Europe has yet to decide who it wants to run the International Monetary Fund but one thing is certain: it won’t be Mark Carney.

The Bank of England’s governor is on the lookout for a new challenge when he leaves Threadneedle Street next January and would have made any merit-based shortlist for the IMF hot seat. In truth, the chances of him getting a sniff at the job were always slim: he was born in the wrong part of the world.

By an outdated convention, the managing director of the IMF is a European while the president of the World Bank is an American. Carney is Canadian, and that rules him out, even though he also holds UK and Irish passports.

Finance ministers from the eurozone want to ensure the IMF will be there for Europe in the event of another global downturn affecting the single currency. That, though, is the easy bit.

The northern Europeans want someone who will be tough on debt, budget rules and the need for structural reform, which is why Jeroen Dijsselbloem, the former Dutch finance minister and Olli Rehn, Finland’s central bank governor, are in the frame.

The southern Europeans want someone more sympathetic to them, which is why Portugal’s Mario Cénteno, chair of the Eurogroup of finance ministers; and Spain’s finance minister, Nadia Calviño are in the running.

Bulgaria’s Kristalina Georgieva, number two at the World Bank, is the obvious compromise candidate. True, the IMF would have to waive the rule that excludes people becoming MD after their 65th birthday, but Georgieva appears to have the backing of Paris. And, given that five of the last eight IMF bosses have been French, that could prove crucial.