UK Prime Minister May faces fight for leadership in crucial Brexit showdown

Key Points
  • Boris Johnson steps down as U.K. foreign secretary over the terms of Brexit.
  • His resignation comes hours after Brexit Secretary David Davis quit.
  • The prime minister faces a crucial meeting with her own party Monday to prevent a leadership challenge.
Theresa May:  We are preparing for a range of Brexit outcomes
Theresa May: We are preparing for a range of Brexit outcomes

The resignation of U.K. Foreign Secretary Boris Johnson on Monday afternoon has led to suggestions that the British government is on the brink of collapse.

Johnson stepped down after Prime Minister Theresa May outlined her government’s desire for a softer version of Brexit. He is the second cabinet minister to resign within 24 hours after the U.K.’s main Brexit negotiator, David Davis, quit late Sunday night.

A statement released by Downing Street confirmed Johnson’s departure and said a replacement would shortly be announced. Later, in a statement to parliament, May thanked the “work” of Davis and “passion” of Johnson while noting their differences in opinion with her over Brexit.

That gratitude may not last long with many seeing the resignation as a pre-cursor to a leadership challenge, which would bid to topple May and replace her with a more ardent supporter of Brexit.

Britain's Prime Minister Theresa May holds a press conference at the end of the second day of the G7 Summit on June 9, 2018 in La Malbaie, Canada.
Neal | Getty Images

The prime minister would have to conduct a leadership contest if at least 48 of her own lawmakers were to move against her. The process for that involves politicians sending letters calling for a vote of confidence to the powerful 1922 committee of backbenchers.

Once that threshold has been reached, the committee's chairman will announce the start of the contest and invite nominations.

That committee, which May is due to address at 5:30 p.m. local time (12:30 p.m. ET), coordinates the views of May’s Conservative Party in the House of Commons. It is believed that anything less than a strong showing from May at this meeting will trigger a leadership contest.

The former UKIP leader Nigel Farage, who is considered by some as the architect of Brexit, took to Twitter congratulating Johnson on his resignation and said it was time to get rid of the "appalling Theresa May."

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Jeremy Corbyn, the leader of the opposition Labour Party, said it proved that Theresa May was incapable of negotiating a Brexit deal with the EU, given the splits within her own party.

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In Brussels, the European Union (EU) President Jean-Claude Juncker offered a sarcastic assessment, noting that last week’s meeting to agree the U.K.’s Brexit position had failed. “This clearly proves that at Chequers there was a big unity of views in the British cabinet,” he said to reporters.

Sterling moves

In reaction to Johnson's resignation, the pound fell around 0.2 percent against the dollar to its lowest point of the day.

Thanos Vamvakidis, global head of G10 FX strategy at BofA Merrill Lynch Global Research, told CNBC vie email Monday that the longer-term direction of sterling needs more clarity.

"If May survives and is able to replace the hard Brexiteers with new ministers more open to soft Brexit, it will be good for sterling. However, if she is forced out, political uncertainty will increase and the sterling will suffer," he said.

And Nikos Skoutaris, a professor of European law and politics at the the University of East Anglia, said Monday that the resignations would likely change the negotiating stance of the U.K. as it exits the EU.

"Reading the British press over the weekend, one could get the impression that the statement that came out of Chequers would be the definitive end state of the future U.K.-EU relationship," he said.

"The resignations of David Davis and Boris Johnson raises serious questions about the viability of the U.K. position."