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Theresa May resignation opens door to 'hard Brexiters' Johnson and Raab

The resignation of Theresa May as leader of the Conservative party potentially opens the way for a more hardline Brexiter to take over, but whomever replaces her still faces a parliament divided on how to implement the U.K.'s departure from the European Union.

Having agreed in November 2018 the terms of the U.K's withdrawal from the European Union, May failed three times to pass her Brexit bill in the House of Commons, and this week abandoned plans for a fourth attempt to push the bill through following backlash from Conservatives over concessions made to win votes from Labour MPs.

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Theresa May sets date to resign as after failing to convince the House of Commons to back her withdrawal agreement with the European Union.

Source: Associated Press

In her resignation speech, May outlined that she will step down as the leader of the Conservative party on June 7, remaining as prime minister until a successor is chosen.

"It is now clear to me that it is in the best interests of the country for a new prime minister to lead that effort," she said outside No. 10 Downing Street, the official residence of the U.K. prime minister.

Early market reaction has been muted. Sterling was little changed at $1.2661 as of 8:55 a.m ET. It has fallen 5.1% since reaching a nine-month high on March 13.

"Sterling took May's resignation in stride as this latest chapter in the U.K.'s Brexit drama looks fully priced," according to a note published by TD Securities.

Leadership contest

May has come under increasing pressure to step down in recent days after failing to find support for a fourth vote on her EU withdrawal agreement. After talks to find a compromise with the opposition Labour party collapsed on May 17, she added concessions to her Brexit deal, including the option of parliamentary votes on a second referendum and the possibility of closer trade ties with the EU.

Attention now turns to who will replace May to head up the all-consuming withdrawal process. The Conservative party will begin the process to replace May as leader in the week beginning June 10.

Former foreign secretary — and leading Brexiter — Boris Johnson is the only person to have announced his intention to stand so far, confirming his interest at an industry event earlier this month. A YouGov poll of Conservative party members placed Johnson as the current frontrunner.

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Johnson is expected to be joined in the running by other prominent Brexiters including former Brexit Secretary Dominic Raab and Andrea Leadsom who resigned as Commons Leader on May 22.

"A new leader is unlikely to bring the country closer to a solution for the Brexit dilemma," according to Silvia Dall’Angelo, senior economist, Hermes Investment Management.

Dall’Angelo suggested a general election will be required to resolve the fragmentation in parliament. "The parliamentary arithmetic would not change: while there is a majority against a no-deal Brexit, there is no agreement on the way forward."

The clock is ticking on the U.K. parliament to agree to an approach to Brexit after the EU granted a six-month extension to Article 50, ending Oct. 31. Options include holding a second referendum, withdrawing Article 50 and leaving the EU without a deal.

"As things stand, a further extension of Article 50 will be necessary," said David Owen, chief European economist at investment bank Jefferies. "If this does end up in another vote, this will take at least 22 weeks to organize, which takes us likely beyond October 31. Constitutionally, it will now be easier for any government intent on a no-deal Brexit to push this through – but the parliamentary arithmetic has not and will not change.”

Brexit victim

Industry is also concerned by the effects of another prolonged period of uncertainty on the U.K. economy.

"Britain’s manufacturers now call on whoever takes over as prime minister to find a solution to the Brexit dilemma at speed," Stephen Phipson, CEO of the manufacturers’ organization, Make UK, said in a statement.

The collapse of British Steel Corp. Ltd., the country's second-largest steelmaker, was seen by some as the first major casualty of the Brexit impasse, with the company noting that important European customers have been cutting the U.K. manufacturer out of its supply chain.

The Confederation of British Industry's Director General Carolyn Fairbairn praised the prime minister for her efforts but called for "compromise and consensus."

"Her resignation must now be a catalyst for change. There can be no plan for Britain without a plan for Brexit. Winner takes all politics is not working. Jobs and livelihoods are at stake," Fairbairn said.