What’s ahead for the UK after May’s resignation
Her fate was never in doubt – in fact, it’s amazing she hung on as long as she did. On 24 May, after briefly teasing a fourth vote on her deal, Theresa May announced her resignation. Doing so immediately triggered the Conservative leadership election process.
By 10 June, ten candidates had thrown their hats in the ring, including the front-runner, Boris Johnson. Over the past month, the campaign has seen a series of hustings, debates, and ballots. It took five polls to whittle the field down to the last two – Jeremy Hunt and Boris Johnson.
What will the election of either of these men mean for the United Kingdom, and Brexit? We’ll explore both possibilities in today’s blog.
Conservative members to vote on Hunt vs. Johnson for PM in July
We’re down to the final two. On 20 June, the fifth ballot of Conservative parliamentary members eliminated Michael Gove, leaving Jeremy Hunt and Boris Johnson as the last candidates standing. Now, it’s in the hands of the 160,000 members of the Conservative Party. On 6 July, they will begin casting postal votes. By 23 July, we should have a new Prime Minister.
How does the polling look so far? At first glance, it seems like it’s Johnson’s race to lose. According to a ComRes poll of Conservative Party councillors, Johnson leads Hunt by 21 points (61%-39%). However, the general public feels otherwise – according to YouGov, they prefer Hunt over Johnson by 12 points.
Only members of the Conservative Party get to vote for the next PM, however. Among those who lean Conservative, Boris is ahead by nine points. While we can’t verify how many respondents are members of the Conservative Party, it gives insight into what many consider obvious. And that is – Boris Johnson is highly likely to become the UK’s next Prime Minister.
What will the result mean for Brexit?
Despite our bold predictions, anything can happen in politics. In the era of the 24-hour news cycle, outlets can inflate the importance of the most inconsequential stories. For instance, in late June, London police were called to Boris Johnson’s flat amid complaints of a domestic dispute. Officers made no arrests, but shortly after that, Johnson’s approval numbers fell.
As such, we can’t discount the possibility of Jeremy Hunt scoring an upset victory. Where does he stand on Brexit? Despite his current support of Brexit, Hunt has taken a more dovish stance, especially compared to Boris’ positions.
During the 2016 referendum, he publicly supported the “Remain” campaign. After the vote, he pushed for a second referendum on whether Britain should stay in the single market. However, by 2017, he had changed his position, citing the “arrogance of the EU commission.”
Hunt feels that the UK will ultimately prosper even without a deal. However, throughout 2019, he worked tirelessly to convince MPs to back Theresa May’s Brexit deal. Given his history, we believe Hunt will push hard for an agreement with the EU.
If current opinion polls hold, though, Boris Johnson will assume power on 23 July. Unlike Hunt, Johnson refuses to take no-deal off the table. Although he claims the odds of it happening are “a million-to-one against,” the ensuing months will be filled with stomach-churning uncertainty.
A sharp point of contention: The controversial backstop between Northern Ireland and the Republic of Ireland. This arrangement, part of May’s Brexit deal, would see a temporary customs union erected between the two territories. Conservatives aligned with Boris Johnson balked at this, saying it could prevent the UK from making its own trade deals indefinitely.
Contrary to Johnson’s claims, the EU refuses to renegotiate the current terms of the deal. They expect the UK to leave the European Union on 31 October. In essence, the British public won’t get bilateral talks – they’ll get an international game of chicken.
If Boris is elected, will the UK crash out of the EU without a deal?
If you believe the gent, you’d be just as likely to get hit by lightning. If you missed his bold prediction above, he cites the odds of “no-deal” as being a 1,000,000:1 outcome. Of course, politicians these days are expelling more hot air than usual. As such, it’s best to take anything they say with the world’s most gigantic grain of salt.
What are the experts saying? If you believe the bookies, things are looking rather grim. According to Paddy Power, they’ve set the odds of a no-deal Brexit at 7/4 – or 36%! The traders at Goldman Sachs are slightly more optimistic, pegging the odds of “no-deal” at 15%.
We’ll go with the professionals on this one. However, despite their dire odds, they do believe there is a higher chance of a resolution than not. While inflammatory rhetoric from Johnson has increased risk, leaving without a deal would seal his political fate. In the chaotic aftermath of “no-deal”, he would likely lose a no-confidence vote in Parliament, triggering an election. While he will try to get the EU to blink, he won’t commit political suicide, either.
Furthermore, the EU has much to lose from a hard Brexit, as well. Projections have the trading bloc losing 1.5% of their GDP by 2030, with Ireland faring the worst, at almost 4%. Facing a British PM hell-bent on getting his way, they may relent, extending the deadline once more.
However, nobody believed the UK would vote for Brexit in the first place. But, they did. We now live in an inherently unpredictable world. As such, it’s best to plan for the worst-case scenario.
What will happen to the Pound Sterling in a “no deal” scenario?
Some traders assume currency markets have already priced in the possibility of a “no-deal” Brexit. WRONG. They accounted for the eventual resignation of Theresa May – that’s why there was virtually NO reaction in major GBP pairings on 24 May.
Despite May’s shambolic handling of Brexit, she never really was prepared to invoke the nuclear option. In contrast, Boris has clearly stated the UK is leaving the EU on 31 October – with or without a deal.
Throughout June, Johnson has emerged as the overwhelming favourite in the Conservative leadership race. During this time, the market has reacted negatively. At market close on July 5, GBP/EUR stood at 1.1141, a 1.1% drop on the month.
If the UK is allowed to crash out of the EU, though, it will make the post-May plunge look like a minor tumble. Germany’s Bertelsmann Foundation estimates that the UK will lose 57 billion EUR of income per year – this stat alone will send chills through the markets.
However, the severe recession following a “no-deal” Brexit will weigh on the GBP the most. According to a study commissioned by the University of Sussex, the United Kingdom could lose 750,000 jobs, if “no-deal” happens. Consumer spending accounts for more than two-thirds of the UK’s GDP – those thrown out of work won’t contribute to the economy. Others, fearful for their jobs, will also curtail their spending; isolated from Europe, there will be less overseas money transfers.
The GBP tanked 25% during the Great Recession. It’s not far-fetched that a “no-deal” Brexit could match or exceed that event, on top of all the losses so far.
Hold on to your bowler hats
We live in an era of economic populism. Voters, screwed for generations by the political establishment, are voting for politicians willing to make bold promises. The old rules no longer apply – if you expect Brexit to come out in the wash, you’re gambling.
While a compromise or extension is likely, anything could happen between now and 31 October. Hedge your bets, and hold on to your bowler hat – it’s going to be a wild ride.