- U.K. lawmakers return from a summer recess on Tuesday, with less than 60 days to go before the world's fifth-largest economy is scheduled to leave the European Union.
- It provides the first chance for rebel lawmakers to take steps to stop a so-called "no-deal" Brexit on October 31.
- "Do not be surprised if the first steps towards a snap election are taken," Kallum Pickering, senior U.K. economist at Berenberg Bank, said in a research note.
Westminster is poised for high drama over the coming days, with market participants likely to closely monitor the political ramifications of a parliamentary showdown.
It provides the first chance for rebel lawmakers to take steps to stop a so-called "no-deal" Brexit on October 31.
"The overriding theme for the week will be the ongoing rift in the Conservative Party," Kallum Pickering, senior U.K. economist at Berenberg Bank, said in a research note.
"Do not be surprised if the first steps towards a snap election are taken."
Prime Minister Boris Johnson has pledged to deliver Brexit on October 31 "do or die, come what may" even if that means leaving the bloc without a deal in place. He reiterated that sentiment Monday in a statement where he insisted the chances of striking a deal have increased and that Britain would not delay its exit from the bloc again.
A no-deal Brexit is seen by many inside and outside of parliament as a "cliff-edge" scenario to be avoided at all costs.
Leaving without a deal would mean an abrupt departure from the EU with no transition period allowing businesses to adjust to life outside the bloc.
The leader of the opposition Labour party Jeremy Corbyn said Monday that this week could prove to be the "last chance" for lawmakers to stop a no-deal Brexit.
Opposition lawmakers, as well as some members of parliament (MPs) from Johnson's ruling Conservative Party, are poised to legislate over the coming days in a bid to stop the possibility of no deal.
The new prime minister has threatened to expel Conservative lawmakers if they try to stop his Brexit plans this week, in an extraordinary attempt to dissuade MPs from voting against him.
If Johnson followed through with this threat, it would eradicate his wafer-thin parliamentary majority and make his ability to govern very difficult.
Johnson could then be tempted to hold a snap general election in a bid to break the deadlock.
Rebel lawmakers determined to prevent a no-deal Brexit effectively have two options: change the law or change the government.
On Tuesday, a broad range of lawmakers are expected to push ahead with plans to try to put a block on a vital part of Johnson's Brexit plan.
Presently, MPs are not scheduled to hold any debates in parliament until September 9, but the Labour party has said it will try to secure an emergency debate this week.
"Expect a messy few days ahead," Pickering said.
That's because lawmakers will first need to take control of the parliamentary agenda before passing a law to block a no-deal Brexit through both houses of parliament.
Stopping a no-deal Brexit in this way "won't be easy," Pickering said.
Instead, lawmakers might decide the only way to achieve their goal would be to "topple the government in a vote of no-confidence."
Last week, Johnson announced that parliament would be suspended for five weeks as of September 9, restricting time for anti no-deal lawmakers to stop an abrupt EU exit. The move has been met with nationwide protests which continued over the weekend.
Remarkably, even if rebel lawmakers are successful with their proposed legislation to stop a no-deal Brexit, the Conservative-led government has so far declined to guarantee it will abide by the new law.
"If Boris Johnson were to frustrate or ignore this law, then expect a vote of no confidence later down the line or even Boris declaring the need for an election himself," Jordan Rochester, currency analyst at Nomura, said in a research note.
On Wednesday, British Finance Minister Sajid Javid will unveil his spending review.
In the scheme of things, analysts have dismissed Javid's speech as a "relatively tame affair," which is likely to focus on key election-sensitive areas such as policing, health and education.
Elsewhere, there are two court cases that will be important to bear in mind.
There is the Cherry Case (on Tuesday in the Scottish courts) and the Gina Miller Case (Thursday and full hearing if agreed on Friday).
"If both proceed, they are likely to end up together in the Supreme Court. Cherry argues the prime minster gave misleading advice to the queen for his reasons to suspend parliament — whilst prorogation by the queen cannot be legally challenged, Gina Miller and Sir John Major believe they can legally challenge the advice the prime minister gives to the queen," Nomura's Rochester said.
An election can be triggered in two ways: If two-thirds of the House of Commons vote in favor of holding a snap vote, or if lawmakers pass a motion of no-confidence in the Conservative-led government — and no alternative government is confirmed within a two-week period.
"We are heading increasingly towards no deal becoming a real option," Cailin Birch, global economist at the Economist Intelligence Unit (EIU), told CNBC on Monday.
Birch said this was because there was now a limited amount of time to find a consensus in parliament and the EU has "dug its line further into the sand" regarding the Irish backstop.
When asked what a snap election could mean for sterling, Birch replied: "At this point, there would be no additional certainty added by a new election."
For his own part, Johnson insisted he didn't want a new election.
"I don't want an election. You don't want an election," he said Monday.