Now, as Boris Johnson said on Tuesday, the campaigning is over and “the work begins”.
This is as true for Mr Johnson, who becomes the UK’s prime minister on Wednesday, as it is for the tortured souls who trade UK assets for a living.
For months, years even, sterling has been fighting a phoney war. The UK has stated its intention to leave the EU but not the terms on which it intends to do it, meaning that it remains a guessing game to assess the effect on the economy and the currency. Broadly, though, mainstream economists agree: the harder the Brexit, the deeper the impact.
To wit, the pound has nudged lower since March, with market participants anticipating that Mr Johnson would win the contest to lead his Conservative party and, by extension, the nation. Throughout, he has been clear that he wants to leave the EU at the end of October, with or without a deal.
Minutes after the result of the leadership contest was announced, ratings agency Moody’s reminded markets that it takes a very dim view of the latter outcome, to which it now attaches a higher probability.
“Moody’s view remains that a no-deal Brexit would have significant negative credit effects for the UK sovereign and related issuers,” the agency said. In other words, debt downgrades and higher borrowing costs lie ahead. Theresa May’s earlier Brexit agreement would have been, as Moody’s put it, “credit negative”. But jumping out of the bloc with no deal at all would be “significantly” worse.
Investment house M&G also chimed in to warn of “danger” in the UK government bond market. “Based on the limited information provided during his campaign, there is a probability that Johnson will look to engineer an economic stimulus funded by higher government borrowing and lower taxes,” said fund manager Tristan Hanson. “So, Brexit or no Brexit, the multi-year outlook for gilts is dangerous at today’s extremely low level of yields, even if the Bank of England cuts interest rates and resumes [bond purchases].”
Already, the UK government bond market is on edge. Prices have rocketed of late, along with other global debt markets, on the assumption that central banks will pump fresh support into the economy. But given the depth of political risks, some investors now see better places to invest outside the UK.
Soon, we will see how harmful Brexit really is for the pound (just, incidentally, as many Brits head abroad for the summer to experience their very own exchange-rate crises). Some say it could fall to $1.15 or so, from $1.24 now. Hermes’ Silvia Dall’Angelo fears it could sink to parity with the dollar.
The coming months are crunch time, and it is not hard to imagine prime minister Johnson taking to a podium outside 10 Downing Street in an effort to soothe market nerves. Typically, that demands a serious, steady hand and a clear message. As he said, the work begins now.