The return of Boris Johnson would worry financial markets, a former Bank of England deputy governor is warning – even as borrowing costs begin to rise as the prospect looms.
Charlie Bean predicted “concern” that the extraordinary re-election of the former prime minister – tipped to have the backing of more than 100 Tory MPs – would bring fresh disarray to Downing Street.
Asked if it might “spook” the markets, he said: “There might be some concern about whether this was going to be a stable government again, given the instability that we had at the end of Johnson’s term as prime minister.
‘I think market participants might be concerned that, even if the fiscal statement coming up imminently goes off ok, there might be issues further down the road.”
The warning came as the interest rate demanded by investors buying government gilts rose sharply after Mr Johnson was installed as the bookies’ favourite to succeed Liz Truss.
It was soaring borrowing costs after Kwasi Kwarteng’s disaster mini-budget that forced the Bank of England into an emergency rescue – instability only brought to an end by dramatic U-turns on tax cuts.
Professor Bean said the Treasury must find £30bn of spending cuts or tax hikes to claim convincingly that it has a plan to get a grip on borrowing and debt.
Even if the savings are found, “there will then be a question of whether they can get a fractious Conservative party to support all the measures”, he told BBC Radio 4.
The warning comes after a former cabinet secretary warned the new prime minister must be in place by Tuesday to avoid the risk of a market backlash and higher interest rates.
A former Johnson aide, now critic of the former leader, has said he is enjoying a surge in support among Tory MPs and has a “very” good chance of returning to No 10.
If he wins the support of 100 MPs and enters the race on Monday, it also increases the likelihood that it will last the week and go to a ballot of Tory members.
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