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UK CommentTheresa May survives vote of no confidence by a solid margin

  1. Theresa May will stay on, as 200 MPs voted for her, but will step down before 2022 election
  2. All Brexit outcomes still on the table, ranging from reversing Brexit to a no-deal Brexit
  3. Uncertainty will linger for a long time yet, dampening economic activity and weighing on the pound
May wins majority support, with 200 votes of 317; cannot be challenged again within next 12 months
On Wednesday, it was confirmed that enough letters had been written (at least 48) by Tory MPs to trigger a vote of no confidence in Theresa May as UK prime minister. Theresa May needed 159 of 317 votes, a simple majority, to survive. In the end she got 200 votes and thereby won the vote by a solid margin. Her victory means she cannot be challenged as party leader again within the next 12 months.
May will probably not be able to deliver her kind of Brexit
May repeated that she is determined to stay on and fight to deliver Brexit. However, she said she will stand down as party leader before the election in 2022. In the lead-up to the vote of no confidence, May said that “a change in leadership would put the country's future at risk, and could hand control of Brexit negotiations to opposition MPs”. However, even if May now continues to fight to deliver her kind of Brexit, it is far from certain that she will be successful. There is fierce opposition to May’s Brexit plan within the opposition parties and even among a growing number of Tory MPs. Therefore, May will now go back to the EU to try to make some changes to the backstop for the Irish border, which is the part of the deal that has upset most MPs, including the Northern Irish party, the DUP. However, the EU has said several times what Angela Merkel repeated last night that the EU has gone as far as it can. We therefore believe that any concessions that May could get from the EU at this point would probably only be very marginal. Consequently, we expect that May’s Brexit deal will be voted down when it is presented to parliament, which the government has said will be in January, and some time before January 21. May therefore, in our view, most likely will not be able to deliver her kind of Brexit. Furthermore, the DUP, which has propped up May’s government since the snap election in 2017, is furious with May’s Brexit deal and has voted together with the opposition on all cases since the deal was presented to parliament. Arlene Foster, the DUP leader, has even said that the DUP will consider pulling the plug on their supply and confidence agreement with the Tories, effectively ending the government’s majority in parliament. The Labour party's top priority is to try to topple the government, and if Labour could get the DUP on its side, it could propose a vote of no confidence in the government. If the government fell, a new general election would be triggered if the Tories were not able, within 14 days, to put together a government that was approved by parliament.
Uncertainty will linger for a long time to come, dampening economic activity and weighing on the pound
In any case, given the deeply divided UK parliament and the fact that there is no majority behind any kind of way forward, we believe the UK politicians will have to put the Brexit question to the people once more. It could either happen through a general election or a new referendum. In both cases, the UK would have to apply to the EU to get the Brexit deadline extended, which we believe the EU would grant to allow due political process. If so, Brexit would be postponed until the end of next year, or beyond, if it happens at all. We see a no-deal Brexit as rather unlikely, as there is no majority in parliament for it. We therefore believe UK MPs would try all possible routes to avoid it. However, it cannot be dismissed altogether. Technically, a no-deal Brexit could be the outcome, if UK politicians just kept on bickering and were not able to get a majority behind any kind of way forward. We do not believe the EU would allow an extension to the Article 50 deadline if UK politicians could not come up with a viable way forward, or if they just wanted to negotiate some more to try to get more concessions from the EU. In that case, time would just run out and the UK would crash out of the EU on March 29 next year without a deal. So, this is not over yet. All options are still possible, ranging from Brexit being reversed to a no-deal Brexit. We believe Brexit uncertainty will linger for a long time yet, weighing on economic activity and the pound.

Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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