Brexit Watch: Will December be the end of May?

Is Theresa May about to fall victim to the voracious Brexit process or could a 'no-confidence' vote shore her up? Morten Lund favours the latter.

Peace and good will…: …to all men. Except you Boris…and Jacob…you too Dominic…and don’t forget Michael…or Sajid. UK PM Theresa May outside 10 Downing Street this morning looks ahead to the ‘no-confidence’ vote and will “contest that vote with all she’s got”. Meanwhile, the rest of Europe watches on. Photo: Leon Neal/Getty Images

The chairman of the 1922 Committee, Graham Brady, announced this morning that the 15% MP (48 letters) threshold of the Conservative Party seeking a vote of no confidence in prime minister Theresa May has been exceeded. The ballot will take place between 19.00 and 21.00 tonight (CET time). An announcement of the result will be made later in the evening.

The outcome of the vote will be determined by a simple majority. As the Conservative Party has 315 MPs, 158 members are required.

If  May fails to win a majority, she will resign as leader of the Conservative Party, but most likely stay as prime minister, until a new leader has been elected (like in the case of David Cameron in 2016). Normally, it takes several weeks to elect a new leader (around 5-8 weeks), as the Conservative MPs first have to narrow the contenders down to two finalists before they are put forward to Tory party members.

On the other hand, if May wins the vote she cannot be challenged for 12 months strengthening her position and mean that she can only be removed from office via a general election before the March 29 Brexit deadline (there are two ways – read here).

This one’s going to run, and run, and run….Source: Nordea Markets

Who will win?
May is still the favourite to win the no confidence vote for two reasons. First, when chairman of the European Research Group (hard line Tory Brexiteers), Jacob Rees-Mogg, also tried to reach the 48-letter threshold back in November, he failed. Thus, although many MPs disagreed or even disliked her deal back in November, several still voiced their support to the prime minister. Second, looking at the alternatives, they are not as centric as the current incumbent and therefore may not appeal to the soft Brexit/Remainers wing. Hence, the favourite candidates are former Brexit Secretary Dominic Raab, former Foreign Secretary Boris Johnson, Environment Secretary Michael Gove and Home Secretary Sajid Javid – which all, except for the latter, are clear Brexiteers.

As we wrote in our preview of the now cancelled December 11 vote, we think the risk of a no-deal would rise significantly if May loses the vote tonight, and especially if Johnson or Raab wins the following leadership contest. Furthermore, we believe a new deal with the EU would most certainly require an extension of the March 29 deadline due to the time pressure, which in turn is only possible by a unanimous decision by the EU27.

Market reaction
Looking at betting markets, May is the favourite to win the vote. However, we do not think this is yet priced in the GBP – both due to the fact that she is not favourite by a large margin and also, only a minority of the MPs have officially taking side. Thus, we think the sterling would rally 2-3% in the case of a May win, as this would clearly strengthen her position. On the flip side, a May loss would both increase the risk of a no-deal outcome as well as “paralyze” the Conservative Party for several weeks until a new leader is elected. Therefore, in this scenario, we would expect EUR/GBP to gain 3-4%.

No laughing matter: So much is at stake today as UK PM Theresa May gears up for yet another battle. Photo: Sean Gallup/Getty Images

Related research:

Brexit Watch: Game of votes
May stares into the abyss as resignations mount
May walks the line as crunch Brexit talks continue
May will still be PM come Brexit – probably

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