From Citi:
The sudden withdrawal Monday of Andrea Leadsom for the Conservative party leadership leaves Home Secretary Theresa May as the sole candidate. David Cameron has announced that there will be a new PM by Wednesday night; we expect May to take over as PM shortly.
Given May’s imminent appointment, discussions about the UK’s strategy for Brexit negotiations can now begin up to 2 months earlier than previously anticipated, accelerating the likely timeline for Brexit. Although various loopholes to avoid Brexit are conceivable, we continue to consider these highly implausible for political reasons, and maintain our 80% probability that Brexit happens.
While opposition Labour, the Liberal Democrats and the Green Party have demanded new elections, this is not our base case, even if the possibility is nonnegligible. Simply put, the combination of the fragmented state of the opposition and the fixed-term Parliament act make this unlikely in the short-term in our view.
May supported the unsuccessful campaign for Britain to stay in the EU, but was considered a “soft Remainer”, critical of EU policies, in particular free mobility of labour, throughout her tenure as Home Secretary. She has previously stated that “’Leave’ means leave” and that she would invoke Article 50 TEU, possibly by yearend. This move would kick off negotiations with the EU, ultimately ending with a withdrawal agreement after two years. That deadline could be extended only by unanimous vote of the remaining 27 EU countries.
May has so far not laid out a full strategy for the EU negotiations. She has said that she would negotiate “the best possible terms” with the EU but has also said that the UK “must regain control of the numbers of people who come” and that “net migration in the tens of thousands is sustainable, but it is going to take time”. She has also highlighted the importance of access to the EU’s single market for financial services, stating that: “we need to […] ensure that we can continue to get the right deal for the UK in terms of financial services as part of the negotiation”.
This position is in conflict with the fact that the EU currently does not offer full access to the single market—regarded as the “crown jewel” of the union– without also accepting free mobility of labour, stating at its 29 June informal summit that “access to the single market requires acceptance of all four freedoms” of the EU. Both the Norwegian-style EEA membership, which is the only one including full access to the EU’s single market for financial services, and the Swiss model, which does not, include free mobility of labour. Both models may be difficult to reconcile with May’s current stance on immigration, a key lightning rod for public discontent.
Expect a very hard bargain from Europe. the last thing it needs is a successful UK secession.
