The world of business is, apparently, appalled by the actions of the 48 or more Conservative MPs who have triggered a vote of no confidence in Theresa May as Conservative leader. According to the Institute of Directors, its members are ‘tearing their hair out’ over today’s news. The message seems to be that a change of Prime Minister is an unwanted distraction when the country is already in a state of crisis.
Yet markets seem to disagree. The FTSE this morning is up by more than one per cent. However negatively bosses might see the potential end of Theresa May as Prime Minister, investors in their companies seem to be taking a rather more positive view. It is not the first time that a divergence has emerged between business leaders and investors over Brexit. Immediately following the 2016 markets plunged, yet after a few days they began to recover strongly – and indeed finished the year substantially up on where they had been on referendum day. Yet the views of businesses leaders – expressed either directly or through bodies such as the CBI – lagged well behind. The Purchasing Managers Index – which is an opinion poll of businesses, giving an early indication of whether they are expanding or contracting their activities, whether they are feeling confident or not so confident – lagged a month behind the markets.
Maybe it will turn out the same way again. There is every reason why investors might be relieved by the possible end of Theresa May as Prime Minister. A different leader, they might conclude, might succeed in extracting a better deal from the EU, and be less likely to condemn Britain to the purgatory of the backstop. But above all else, they might be calculating that a stronger Conservative leader will be more likely to win a general election – whether it comes in the next few months or not until 2022 – and that the risk of a Corbyn-led Labour government has slightly receded today. That is by far the bigger fear of markets: that we could end up with a high tax, high spend government which starts racking up debt again and which drives entrepreneurs overseas – not to mention Corbyn’s threat to seize 10 per cent of company stock in order to set up funds to reward the workers.
Should she fall this evening, we will soon see just how popular Theresa May is with the markets. My guess is that investors would take her demise remarkably calmly, perhaps even with a post-May bounce.