UK: Great uncertainty whether May survives as Prime Minister - BBH

There is great uncertainty in UK about whether May survives as Prime Minister, but it is not clear either who would replace her, suggests the analysis team at BBH.  

Key Quotes

“UK Prime Minister May announced a cabinet reshuffle over the weekend that gave two of her former rivals (Gove and Leadsom) join the cabinet, while she lost two of her close advisers.  She faces the backbenchers in Parliament today.  There is great uncertainty whether May survives as Prime Minister, but it is not clear either who would replace her and if they have greater support about the Tory base.  Brexit negotiations were to begin shortly, and it is not clear if they will go forward and if and how the newly chastened government's position will be modified.”

“EU President Tusk noted that the end date of Brexit negotiations is fixed, but the start date is not.  The controversial positions of the DUP, upon who the government will rely on to support the minority government, in some ways makes the Tories appear even more desperate and weak rather than strong and stable.  Rates will likely remain lower for longer, and sterling may be a bit weaker than it otherwise would have been.  The UK appears to have entered a more fluid political situation just as the negotiations were to begin.  Its position seems to have been compromised.   There still seems to be little scope for a soft Brexit if by that is mean a dilution of the EU's demand that the four freedoms must be respected.”

“At the same time, the risk is hubris among the celebratory Labour.  It is not clear how much was due to Corbyn's newly discovered charisma and how much was a vote against something (what that something seems to be a bit of a Rorschach Test presently).  Moreover, a moral victory may sound nice, but Labour still lost, and it follows a drubbing in the local elections last month.  Even if another election is forced, as many now think will be the case, perhaps later this year, a Labour government still does not seem a likely scenario.’’