UK: May’s effort to seek a larger majority has backfired – Deutsche Bank

In line with the trend of surprising UK political upsets, UK Prime Minister May’s effort to seek a larger majority for Brexit negotiations has backfired, with the Conservatives losing twelve seats in the election and their overall parliamentary majority, according to the analysts at Deutsche Bank.

Key Quotes

“The electoral math

First, the parliamentary math. Under the results, only the Conservative Party would be able to form a working parliamentary majority. While the Conservatives have lost their overall majority, their seat share combined with the Northern Irish Democratic Unionist Party (DUP) reaches a working majority of 15. By contrast, the Labour Party are unable to form a government, with a combined Labour, Liberal Democrat, SNP, Plaid and Green Party seats falling 14 short of a working majority.”

“What happens next?

The first test for the Conservative government will be the Queen’s Speech on the 19th June. If the Conservatives, with the DUP, are unable to command a majority for their legislative agenda, this will represent a motion of no confidence. Prime Minister May will resign and the Labour Party led by Jeremy Corbyn will be invited to attempt to form a government. If no government is formed within 14 days, the Fixed Term Parliaments Act dictates that a new general election is called. Given the electoral math, it is highly likely that new elections will materialize if the Conservatives are unable to pass the Queen’s speech in ten days’ time.” 

“What about the political future of PM May?

While the election result has been widely seen as a rejection of the Prime Minister’s policy agenda and leadership style, May has rejected calls to resign, and initial press reports suggest that senior Conservatives are backing her leadership, in the short term at least. More medium term, the durability of a May premiership seems open to question. The Prime Minister’s authority and that of her key advisors has been clearly undermined by last night’s result, putting her in a weak position within the Conservative Party. She will be vulnerable to a leadership challenge from both the soft left and hard right of the Conservative party based on differing Brexit scenarios.” 

“What does this mean for Brexit?

Official talks between the UK and EU27 were due to be scheduled on the 19th June, the same day as the Queen’s Speech. But these talks were structured around the Brexit plan, and corresponding EU negotiating objectives, outlined before last night’s general election shock. Senior Conservative ministers, including the Prime Minister and Brexit secretary David Davis, had characterized the election as a referendum on the government’s plans to leave the Single Market and customs union. Based on this, there has been a fairly comprehensive rejection of these objectives by the electorate. The salient question for markets is whether Prime Minister May recognizes the shift in political landscape and signals 1) a softer Brexit plan or 2) a muddle-through based on existing plans.”