One advantage of this is that it would provide Mrs May’s successor more time to try to break the Brexit deadlock and lessen the likelihood of another extension to the UK’s current departure date of 31 October.
But given the complexities of the Brexit negotiations and the deep divisions in the House of Commons, we still judge that there is insufficient time to do so and therefore we still expect a six-month delay to end-April 2020.
For further details, see: Potholes in the (Belt and) Road?
In terms of who will succeed Mrs May, Former Foreign Secretary Boris Johnson is the clear favourite. Numerous surveys of the Tory membership base show he commands a strong lead over other potential frontrunners, while polling by POLITICO-Hanbury
suggests that he is the only leading contender that would be able to pull voters back from the Brexit Party.
But we caution that it is too early to call the result of the leadership contest, with history showing that the Tory frontrunner does not always win. After the Prime Minister confirmed that she would step down in June, cable has rallied to $1.27.
This morning’s volatility likely reflects the uncertainty that investors are now presented with, by the leadership contest. Our own view is that recent political developments present downside risks to sterling. A new Tory leader could shift to a more hardline Brexit stance, in an effort to claw back Brexit Party votes. Hence, although not our baseline case, the risk of a ‘no-deal’ Brexit have risen.
There is also a greater possibility of a general election, which could see the installation of a Corbyn-led (or even Brexit Party participating) government.