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Macroeconomics

22 July 2019

ALL EYES ON THE UK: NEW MISSION IMPOSSIBLE EPISODE 

Today is the final day that Conservative Party members can choose their new leader, with votes closing at 5 p.m. GMT. Results will be out tomorrow, with the winner becoming Prime Minister on Wednesday.

The UK Parliament’s holiday period starts on 25 July and ends on 2 September. Timelines will therefore be tight as it formally only leaves less than two months before the 31 October Brexit deadline.

It has been over three years since the result of the Brexit Referendum. The new UK Prime Minister will take over one of the most difficult situations a prime minister has faced, with a very slim parliamentary majority and inheriting a Withdrawal Agreement that has been rejected three times by Parliament already.

Boris Johnson has been tipped to become PM for several years but for him to go for the big job with such uncertainty, one would think (or hope) that he has a plan. Johnson should prove a better unifier than Theresa May; however, much will depend on what the European Union (EU) is prepared to give him. The House of Commons, the EU, the European Research Group (ERG) and the Conservatives’ weakness in the polls are all factors that will help determine the outcome of Brexit.

Much has been said during the Tory leadership contest in recent weeks – although No-Deal does not remain the desired outcome of either candidate, the prospects of a No-Deal Brexit have increased and we place a 20% probability on a no-deal Brexit happening on 31 October 2019.

It must be remembered that Parliament does not want a no-deal Brexit. One cannot rule out that Parliament will bring down the new government, therefore triggering a general election. The polls are currently showing heavy uncertainty with the Conservatives, Labour, Liberal Democrats and Brexit Party all polling between 18-25%. It is not impossible that a general election will lead to the whole Brexit process being called into question one day, but we are not there yet. As it happens, the next leader of the Liberal Democrats – a pro-EU party – will be announced today at 4 p.m. Maybe a force to be reckoned with in the future?