Theresa May has announced that she will resign on 7th June, leaving the UK set for a new prime minister.
Blackfinch Wealth Portfolio Manager, Gareth Deacon, provides us with his comments on the recent resignation, along with potential outcomes and the possible impact going forward.
The Impact of Theresa May’s Resignation Announcement
Having announced her resignation, Theresa May waves goodbye to her troubled time inside 10 Downing Street, acknowledging her regret at having not been able to find a way to deliver Brexit. Positive and supportive comments emanating from France and Germany, as to the way in which she has conducted herself while in post, will do little to soften the blow for the battle-weary, soon to be former leader. Ahead of the leadership contest, we must remember that whoever her successor is, they are unlikely to have an easier job.
In recent years it is politics that has risen to the top in terms of factors that determine investment market sentiment. Our portfolios are already positioned to cope well with the ongoing uncertainty around the UK’s political turmoil. However, we must consider all options closely to ensure that we remain appropriately placed to deal with any potential outcome, and therefore change in sentiment, both positive or negative.
All that we know for sure at this moment is that the Prime Minister will stand down from her role as Conservative Party Leader on the 7th June, remaining in place as a caretaker Prime Minister until a new leader is chosen. This will, of course, put any progress on Brexit firmly on hold until a new incumbent is in place.
Election and Brexit Outcomes
In terms of a successor, although it is very early days, at time of writing it is likely that Boris Johnson will put his name forward. Whilst other names are being mentioned as potential suitors, the unpredictability of the race the last time the Tory leadership was up for grabs ensures that nothing can be taken for granted. While there is, of course, so much more to leading the country than simply delivering an outcome on Brexit, we fully expect that each potential candidate will focus their campaign on how they will move forward from the current stalemate. This will undoubtedly form the basis of the reason for their election.
One potential Brexit option that will rear its head again is that of no-deal. The next few weeks will show just how serious an option this really is, both within the Conservative Party and across Parliament. While recent years have proved that political polling should be taken, at best, with a pinch of salt, a YouGov survey carried out less than two weeks ago showed that two-thirds of the 858 Conservative Party members polled favoured the option of leaving the union with a deal. Should these numbers be a true reflection of the desire of the wider party, this will help Boris Johnson’s leadership case. However, it is impossible to ignore the wider majority in Parliament, who in late-March voted 400 to 160 against the idea of no deal.
Should the new leader be determined to move towards a no-deal scenario, there is currently no clear mechanism by which Parliament can stop this from happening. Many options remain open should the will be strong enough, even going so far as a vote of no confidence in the Government. We must remember that whoever steps into Mrs May’s shoes will still not have a majority in Parliament.
So, while there are seemingly many more options back on the table now as to how Brexit may conclude, we can only hope that the next month will offer more clarity on the most likely outcome. It is not the first time that we will have got our hopes up for some degree of certainty on this topic from our politicians.
From a monetary policy standpoint, the immediate impact of this news is that it likely delays any potential interest rate rises from the Bank of England until a more certain path for Brexit can be signposted. This will offer a degree of comfort to markets, for which the pace and direction of interest rates has become such a defining factor.
While there will be debates for years about Theresa May’s legacy, it cannot be questioned that she faced an almost impossible job from the moment she stepped into the role. There has been a lack of confidence for a long time now that she would be able to deliver a definitive outcome for Brexit, and therefore she was left with little option but to resign.
With 31st October coming into view, it is essential that the leadership contest is concluded relatively quickly. The outcome must provide a definitive plan for how the country moves forward with Brexit. Whoever is chosen, and whatever path they pursue, the parliamentary maths don’t change, so some level of compromise will be almost inevitable.
We will monitor the situation extremely closely. As and when necessary, we will exercise our ability to react quickly to reposition investors’ portfolios to take advantage of investment opportunities, but also move to protect capital on the downside. We will continue to take an active approach to the management of the portfolios throughout what will be a crucial time for the future of Britain and our relationship with the EU.