Boris Johnson is going, and strategists are betting on big changes to

LONDON — U.K. Prime Minister Boris Johnson’s eventual successor is likely to bring forth greater fiscal support and a less fractious relations with the European Union, according to economists.

Johnson formally resigned as leader of the Conservative Party on Thursday, but said he would stay in Downing Street until a successor is chosen — despite many calling for him to step aside immediately and allow a less controversial “caretaker” to take over in the interim.

Exactly when a new leader will be appointed is unclear, but reports suggest the aim is to have one confirmed before the Conservative Party conference in October. By Monday morning, 11 hopefuls had entered the race to replace Johnson with Rishi Sunak, Penny Mordaunt and Liz Truss the favorites, according to the U.K. bookmakers.

The prime minister’s ousting coincides with a particularly perilous period for the U.K. economy. Inflation hit a new 40-year high of 9.1% in May as soaring food and energy costs deepened the country’s cost of living crisis.

Meanwhile the economy unexpectedly shrank in April to mark the first consecutive GDP contractions since the start of the Covid-19 pandemic — and the U.K. is widely tipped to experience a technical recession in the second half of the year.

The Office for Budget Responsibility, the U.K.’s independent fiscal body, has projected that real disposable incomes will fall by 2.2% this financial year (2022/2023), the largest annual decline since records began, as the squeeze in household spending power persists.

“Additionally, the uncertainty around the duration and outcome of the conflict in Ukraine is likely to adversely affect investments, as well as export performance via secondary effects on the growth outlook for the EU, the U.K.’s key trading partner,” said Boris Glass, senior U.K. economist at S&P Global Ratings.

“Given the aforementioned inflation squeeze, the Bank of England‘s (BOE’s) tightening of monetary policy, and no end in sight to the Russia-Ukraine conflict, we project 1% growth for the U.K. for 2023, the lowest rate among G-7 countries.”

Fiscal support

Former Finance Minister Rishi Sunak, whose resignation was one of two which triggered the eventual end of Johnson’s tenure, announced a series of measures over the last six months in an effort to combat the cost of living crisis, including a windfall tax on oil and gas majors and a one-off payment to 8 million of the lowest income households.

However, economists broadly expect whichever candidate takes the reins from Johnson to up the ante on fiscal support for the ailing economy.

Modupe Adegbembo, G-7 economist at AXA Investment Management, said a key question is whether Johnson uses his “caretaker” period as prime minister — should he be granted one — to push through short-term fiscal policies.

“However, when a new Prime Minister is appointed, we see an…