While the Leadership Race Heats Up, Can Either Deliver on Brexit?

As the global financial markets respond to the news of China and the U.S returning to the battered trade negotiating table, there’s a war of a different kind brewing in the UK.

The Conservative Party leadership race is heating up and, while many Tory Party members will have hoped for a new beginning, Brexit continues to suggest more doom and gloom ahead for the blues.

Both Boris Johnson and Jeremy Hunt have been hitting the press in a bid to garner the majority support of party members.

Time is not on anyone’s side, with the 160,000 Conservative Party members due to receive the postal ballots in a week’s time.

Of great importance between now and a televised live debate, scheduled for next Tuesday, will be for both candidates to have a clear plan on Brexit.

While the final hustings are expected to take place on 17^th July, ahead of the announcement of the leadership race winner the following week, public sentiment will likely be driven by the 9^th July debate.

Conservative Party Woes

The Tories are already facing the wrath of voters. We saw dire results in both the local elections and the European elections. A snap general election would likely be no different.

Since the EU referendum and David Cameron’s tears, support has diminished at a rapid pace, leaving the Tories in a coalition government.

Next time around, they may well be missing altogether from the day to day running of the country.

That could all change, however, should either of the candidates manage to, not only deliver a plan but one that is palatable for both the EU and for the UK Parliament.

Both are tall orders. For the EU, having the likes of Nigel Farage out of the EU Parliament is an incentive to find common ground. That common ground, however, would raise questions over the future of the EU. A simple path out of the EU would certainly have other member states questioning their membership.

From a UK parliament perspective. Either candidate will struggle to bring together a divided Conservative Party. Brexit alone has created the division in the ranks. With the EU unwilling to renegotiate and the division in the ranks ever present, it’s more of a mission impossible for the incoming leader.

A Snap General Election?

From outside of the Conservative Party, other parties are looking for the Tories to fail on Brexit. A failure to deliver on Brexit would give the opposition party and even the Brexit Party and Lib Dems a chance at taking office.

While a snap general election is unlikely between now and Halloween, a general election is on the horizon. With neither the Tories nor the Labour Party performing well in the local elections, another coalition looks inevitable.

With the Labour Party sitting on the “remain” side of the fence, coalition partner options could be limited. The Tories may also have an issue with the internal divisions on Brexit. Neither party, therefore, may be able to form a coalition with Nigel Farage’s Brexit Party.

In recent days, both candidates have focused on what policies they would introduce if victorious. Neither, however, appear to have a concrete plan on how to tackle the EU’s reluctance to negotiate further.

Both, however, are willing to lead the country out of the EU without a deal. As we saw back in April, the UK Parliament is unwilling to let that to happen.

Is the only real solution a snap general election to allow voters to decide the fate of the country?

Nigel Farage would most certainly find the support of the pro-Brexiteers, but perhaps not all of them. Negative sentiment towards a “no-deal” would test the resolve of some pro-Brexiteers…

For the Pound

The markets had anticipated a Johnson v Hunt battle in the leadership race. The expected outcome gave the Pound a 0.53% gain for June.

Considering the state of British politics, a 0.23% loss year-to-date to the end of June is a palatable one.

We can expect volatility to return, however. Once the Tories have their new leader and he has taken over as Prime Minister, the Brexit show will resume…

For the financial markets, Britain remaining with the EU would certainly be the best outcome. 2^nd best would be a deal departure and obviously, the worst-case scenario is a no-deal Brexit.

As of today, two scenarios seem to be the most likely. Either a snap election and 2^nd EU Referendum or a no-deal Brexit.

At the time of writing, the Pound was up by 0.03% to $1.2698.