Boris Johnson's win in the UK and Impact on Australia

The political and business worlds may be different in many ways, but the developments in one area have consequences for the other. The intersection of business and politics is the “revolving door” which refers to the movement of individuals between the private and public spheres with individuals on both sides bringing expertise in helping the operations of either side. Usually, it has to be a mutually rewarding relationship which enables government and businesses to learn and share the knowledge and best practices.

That said, the Conservative Party in the United Kingdom (UK) has had its biggest general election win since 1987 with 365 seats. The conservative party not only defeated the Labour Party but seized seats in its traditional heartlands, as indicated by the results announced on 13 December 2019. The voters put their faith in Johnson’s ‘Get Brexit Done’ ideology and snubbed Corbyn’s softer Brexit deal proposition.

With his resounding success, Boris Johnson, the leader of the winning party, has promised to take the UK out of the European Union next month on 31 January 2020, to put a close to the long-awaited Brexit.

Brexit being a crucial geopolitical concern, it has been on the headlines for a long time across the world, in addition to the US-China trade tensions, with the key stakeholders keenly awaiting a resolution. As Boris Johnson will implement the terms of the Conservative manifesto, the next five years in the UK will primarily be focussed on business-related aspects, the state of the economy and the standard of living for the citizens.

Few key policies, which will be at the heart of Boris Johnson’s rule include a GBP 100 billion Northern infrastructure fund, GBP 34 billion extra funding for the NHS and greater schools funding. In addition to this Home Office being split up to create a new department focussing on borders, to control the number of low-skilled migrants coming into the UK. His programme will also include some alterations in the immigration system framework, together with new laws for increasing the amount that the migrants pay to use the NHS.

Some of the stakeholders and investors around the world have expressed their relief as one of the lingering areas of political uncertainty would be eliminated from their list of worries. The finalisation of Brexit would bring some stability to not just the British and European markets but also the rest of the world.

What would be the significance of the UK’s exit from the EU for Australia, that is more than 15,000 km away from England?

Well, a boost in the UK stock market can be expected, but it may not have a significant impact on Australian equities. However, companies with the UK exposure can surely expect some boosts as investor sentiments improve.

Some of the market participants are of the view that, with other risks like the US-China trade tensions plaguing the global markets, Boris Johnson’s victory followed by the speculated smooth Brexit deal, would make the UK the preferred export destination for the Aussie exporters as compared to the United States or China in the short term. Further, Australian companies with a greater focus on UK markets, like BHP, Rio Tinto etc. will be impacted by whatever the new trade relationship between Australia and the UK after Brexit culminates into.

Australia used to be a key agricultural exporter to Britain until the UK became part of the EU in 1973, which alienated Australian farmers and directed Australia to establish closer ties with emerging countries in Asia. Now, the UK bidding adieu to the EU, there are opportunities for Australia and Britain to forge better trade relations, perhaps execute a free-trade agreement. The Australian Coalition government and the UK Conservative party have known close ties which could mean that Boris Johnson coming into power could result in expedited trade deal negotiations, to the advantage of Australian exporters doing business with the UK.

Thus, it is widely being speculated that post Brexit, it should be easier for Australian companies to export goods to the UK and Australians will have better access to British working visas, which would mean a higher influx of Australians to the UK.

With the Conservatives win, a strengthening in the pound sterling is also expected which could have ramifications for the Australian dollar that could fall against the pound.

For most of 2019, key global economies had been stuck under trade tensions and political risks that kept the business confidence dwindling. Now, the global growth outlook would commence 2020 on a firmer foundation as the US-China has agreed on a partial deal, and the Brexit dynamics appear somewhat stable and clear.

It is certain that business confidence is about to experience significant improvements that could result in a kickstart in global investments, inventory rebuild and a resurgence of global trade volume. Business activity is most likely to pick up pace in the first half of the new year.

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