Brexit: What could happen now and what it could mean for markets

  • A number of senior British lawmakers have offered public support for U.K. Prime Minister Theresa May.
  • Media reports suggest a vote of no confidence in May's leadership is now likely.
  • Sterling clawed back some losses on Friday but bets against the currency remain high.
An Anti-Brexit campaigner Steve Bray (R) stands with placards  and a pro-Brexit supporter (L) stands with a placard demanding an immediate departure from the European Union.
DANIEL LEAL-OLIVAS | AFP | Getty Images
An Anti-Brexit campaigner Steve Bray (R) stands with placards  and a pro-Brexit supporter (L) stands with a placard demanding an immediate departure from the European Union.

Resignations, market sell-offs, and calls for the U.K. prime minister to step down.

Just another day in the Brexit saga that has engulfed the attention of the British political class and swamped media coverage throughout the country.

The last 48 hours have been particularly intense, triggered by the publication of a text which spells out the terms by which Britain and the European Union could part ways next March.

The 585-page draft, agreed between May's team and their opposite numbers in Brussels, has been attacked by politicians from across the whole of the U.K. Parliament.

What happens next is uncertain but the most immediate challenge for the prime minister is a possible vote of no confidence on her leadership.

Could May be toppled?

Kaya Mar, a political artist, holds a painting depicting Theresa May, U.K. prime minister, on College Green in London, U.K., on Thursday, Nov. 15, 2018. U.K.
Chris Ratcliffe | Bloomberg | Getty Images
Kaya Mar, a political artist, holds a painting depicting Theresa May, U.K. prime minister, on College Green in London, U.K., on Thursday, Nov. 15, 2018. U.K.

May's position had been put under extreme pressure on Thursday after the resignations of several members of her government, including Dominic Raab, her Brexit secretary who led the negotiations with the EU. These politicians have cited concerns over various issues including the length of time the U.K. will remain in a customs union with the EU — which could potentially stifle future trade deals with other global nations.

Despite a running total of seven government members quitting their roles, May refused to buckle telling a press conference late Thursday that she was focused on leadership and getting her deal through Parliament.

Whether she reaches a December parliamentary vote on her Brexit plan as leader looks shaky, as it's been reported that lawmakers in her own party are seeking to oust her, via an official leadership challenge.

Under the Conservative Party's own rules, 48 letters of no confidence in May are required to trigger a challenge. At least 20 have been made public and it's expected that a number of others have been sent but not declared.

If 48 Conservative MPs (Members of Parliament) back a no-confidence vote, there will be a leadership contest and the prime minister would need more than 50 percent of the vote to stay in office. On the plus side, should she win that vote, she could not be challenged again for at least a year.

A vote could happen as soon as Monday.

UK leader rallies support

May has been highly visible in recent days as she tries to present her provisionally agreed deal to leave the European Union as the best, and only, real option on the table.

The strategy had appeared to pay off by Friday morning with several high-profile ministers appearing to distance themselves from the initial rush of resignations.

International Trade Secretary Liam Fox told CNBC on Friday that he had "full confidence" in May and echoed the Environment Minister Michael Gove, by adding that "what we need now is stability."

The Sunday Times newspaper has reported that both men have agreed to stay part of the Cabinet (her most senior circle of lawmakers) along with other Brexit-supporting ministers, Andrea Leadsom, Penny Mordaunt and Chris Grayling.

Parliament will decide

Should May see off any challenge, the next step might prove tougher. The prime minister has promised a meaningful vote on the draft text in Parliament in December. That means she would need a simple majority of the 650 lawmakers that sit in the House of Commons.

Those numbers look unlikely.

Her 315 Conservative MPs do represent the largest party in the House, but a significant number are against the plan. The Conservatives operate a majority in the Commons by working in tandem with 10 votes from the Democratic Unionist Party (DUP). The DUP, a Northern Irish party, have expressed concern that May's deal treats that part of the United Kingdom differently — something of a red line for the hard-line unionists.

The left-of-center opposition Labour Party has 257 lawmakers and would appear to hold the whip-hand. Labour has indicated they will ask their MPs to vote against May's deal, but there are a number of rebels that May can count on. It's estimated she would need around 40 Labour MPs to cross the divide and vote for her. Despite deep divisions within Labour, political analysts see that as a high threshold.

The third-biggest party, the Scottish National Party (SNP), has promised that all 35 of its MPS will reject the deal, calling it an unfair solution for Scotland.

A rejection by Parliament would likely spell the end of May's tenure, according to many onlookers, and could lead to another General Election or even a second Brexit referendum.

Market reaction

Late Thursday, sterling had dipped to its biggest one-day loss against the euro and the dollar in two years. The pound has since stabilized, and Friday morning had scrambled higher to $1.2807 versus the dollar.

Further weakness in sterling is forecast however. On Friday morning, Reuters reported that "risk reversals" on the currency — a measure of calls versus puts — indicated that currency traders were adding bets against the pound. Some optimistic currency experts predict that sterling could soar to 1.40 against the dollar if, and only if, it gains parliamentary approval.

European stocks were higher Friday morning, but no such luck in the U.K. The FTSE 100 and domestically-focussed FTSE 250 both hit session lows shortly after midday on Friday.

The UK's major banks and housebuilders have suffered in particular on fears that a British political mess could result in the country crashing out of Europe with no deal at all.