Brexit: Monday Afternoon Update

Managing Director
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Posted on July 12, 2016

Story of the Day: Theresa May as new PM
As of Wednesday evening, the UK will have a new Prime Minister. Earlier this morning, Theresa May officially launched her campaign to become leader of the Conservative Party and Prime Minister. By end of day, the job was hers. Against what was supposed to be the script, Theresa May’s rival, Andrea Leadsom withdrew her leadership bid, leading Prime Minister David Cameron to announce he will resign Wednesday in favour of an uncontested May.
May has now given a very, very short speech accepting the job. She paid tribute both to Leadsom and Cameron, and has given some insight into her vision of her Premiership: the need for leadership in uncertain economic and political times; that Brexit means Brexit; all effort must go into securing the best possible deal for the UK in leaving the EU; and the imperative of uniting a country which should work for all and not just the privileged few.

How did we move from a two-horse race to no race at all?

Leadsom made comments to the Times newspaper over the weekend which were interpreted as her claiming an advantage over May by virtue of being a mother and therefore having a real stake in the future of the UK. These comments severely wounded her chances of becoming PM. She was seen as being na’ve, lacking judgement and, exploited internally by the Theresa May campaign as “just not PM material”. Leadsom apologized to May and stood down as a PM candidate this morning. We understand that she felt undermined and hurt by the vicious attacks from within her own Party.

This tide against Leadsom was aided by a growing sense across the country that the political limbo, which has taken an economic toll both at home and globally, simply could not continue into September.

The Tory Party won’t want to be reminded that they branded Tony Blair’s successor Gordon Brown as the “unelected Prime Minister” after he was elected to the office by his Parliamentary Labour colleagues. This is exactly how May has landed in the big chair, having attracted support of some 199 Tory MPs without the say-so of the voting public.

So what happens now?

On Tuesday, Cameron will chair his last Cabinet and take his last Prime Minister’s Questions on Wednesday before going to Buckingham Palace to hand in his resignation to the Queen. By Wednesday evening, Prime Minister May will be positioned at No 10 Downing Street. Thursday and Friday should see her picking her Cabinet.

What will be particularly important is who she chooses at the Foreign Office, Treasury, Home Office and as leader of the Brexit team. It is likely that she will bring in a cross section of the party, including some of the leading Brexiters. We have already seen some former MP supporters of Brexiter spokesperson Boris Johnson move to support Theresa May in the last few days, some of whom are almost certain to end up in her new Cabinet.
Labour Party
The Labour Party remain mired in total disarray. Angela Eagle has officially announced her campaign to challenge Jeremy Corbyn for party leadership. Eagle’s decision follows the collapse of talks between anti-Corbyn MPs and trade unions who overwhelmingly support Corbyn.
The civil war within Labour is raging and now a controversy lies within an important passage in the party rule book. Challengers on the leadership ballot need a minimum 20 per cent backing by Labour MPs. But what about the leader himself? Does Jeremy Corbyn need a defined minimum support from MPs? According to Jeremy Corbyn and his legal team, he is automatically on the ballot regardless of the support of MPs, although MPs and lawyers alike have come out for both sides. Ultimately, it is a matter for National Executive Committee to judge, although Corbyn, who continues to hold great support among the rank-and-file membership, has said he would go to the High Court to challenge the move should his name not be included.

In the latest sign that the party could be on the verge of splitting, Labour MPs explored who owned the rights to the Labour Party name and logo last week.
Markets
The political stability afforded by having in place a chosen successor to the PM has steadied both the pound and the markets. Following the announcement of May’s victory, the pound spiked, increasing 0.5 per cent. However, it did see some overall decline during the day and is currently up around 0.1 per cent. The FTSE 100 continues to climb, approaching a one-year high, gaining roughly 1.4 per cent today. As mentioned previously in this space, all losses from Brexit on the FTSE 100 have been regained as it continues to climb. The FTSE 250 is up nearly 3.25 per cent at a two-week high. The domestically-focused index is still down roughly four per cent since the referendum result.
Chancellor George Osborne is travelling to New York, Singapore, and China to meet with major investors. He aims to continue to attract private investment from major global trading partners precipitating a ‘more outward-looking global-facing Britain’, notably the United States. While he cannot be certain of retaining his position within a new cabinet, Osborne is trying to steady the nerves of overseas investors as the country faces an uncertain negotiation out of the EU.

The UK has now, finally, taken a small but crucial step on the ambiguous road to life outside the EU.
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To speak to someone on the ground in London, connect directly with our London lead Ashley Prime at aprime@navltd.com.

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