Is British Leader Theresa May On Her Way Out? Why That’s The Fear — And Why It Matters

U.K. Prime Minister Theresa May’s grip on power is looking shaky, after the second minister in just over a week was forced out of her cabinet. That’s leading to fears her minority government may collapse — and throw the tricky Brexit negotiations into even more disarray.

The latest in a series of blunders by ministers ended in the resignation of the international development secretary, Priti Patel, late Wednesday. The prime minister didn’t dismiss Patel, and that’s being seen as a sign of a weak position, leading to fears May may be forced to leave 10 Downing Street.

What’s happened?

It’s been one messy November in U.K. politics so far. Last Wednesday, Defense Secretary Michael Fallon resigned after allegations of inappropriate conduct toward women.

Reports that other lawmakers may face allegations of sexual harassment have raised the prospect that they may leave parliament, which could prompt new elections for their seats. The results of those by-elections could then threaten the Conservative Party’s thin dominance in parliament, though some argue the risk is slight.

There have been calls for Foreign Secretary Boris Johnson to follow Fallon out of the door, after a gaffe last week that may have hurt the case of a British-Iranian woman detained in Iran on national security charges.

Johnson said in parliamentary committee that Nazanin Zaghari-Ratcliffe was teaching journalism during a trip to the country. However, her family has maintained she was there on vacation, and they fear the foreign minister’s remarks could spur Iran to add to Zaghari-Ratcliffe’s five-year prison sentence.

Then, on Wednesday, Patel resigned from May’s cabinet, after being called back from an official trip to Uganda. She was under fire after details emerged of her unauthorized meetings with Israeli officials, including Prime Minister Benjamin Netanyahu. May is thought to have learned of the meetings via media reports a day after a visit to Downing Street by Netanyahu himself.

While May wrote to Patel to say contact with Israel should be carried out “formally and through official channels,” she held back from sacking the development minister, who was replaced Thursday by Penny Mordaunt.

Why is this important?

All of this has raised even more questions about the stability of May’s government as it tries to make headway in its negotiations to leave the European Union.

EU leaders are bracing for the fall of May before the end of the year, according to a report in the Times on Thursday. They are preparing for either a change in leadership or a new general election that could lead to a Labour Party government, the report said.

The Tories, as the Conservatives are also known, govern with a slim working advantage. They are only in power through a deal struck with Northern Ireland’s Democratic Unionists after May’s party lost its majority in the June snap election.

That result damaged May’s authority severely, as it was her decision to call the vote that led the Conservatives to lose their parliamentary majority. Since then, pro- and anti-Brexit Tories have fought an internal battle over the approach to EU withdrawal that has further sapped confidence in the prime minister.

The fact that May did not choose to sack either Patel or Johnson — both Brexiteers — has only been seen as another sign that she lacks a grip on power.

A change of government in the U.K. would further complicate Brexit talks that are already going nowhere, raising real fear of a “no-deal” exit. A sixth round of divorce negotiations started in Brussels Thursday, but the EU has warned the U.K. that not enough progress has been made on the so-called exit bill.

That means EU leaders at December’s Brexit summit are unlikely to give the green light for negotiations for a transition deal and trade terms to proceed — and those are the items the U.K. really wants to talk about.

“Britain is very weak, and the weakness of Theresa May makes [Brexit] negotiations very difficult,” one European leader told The Times.

If London and Brussels don’t reach an exit deal by March 2019, the U.K. will leave the EU with no trade arrangement. That could seriously hurt the country’s economy, continue weakening the pound and cost a lot of British jobs.

Read: Brexit could cost London 75,000 finance jobs, BOE warns: report

What are the odds of May resigning?

At the bookmakers, the odds are shortening for May to leave before 2018 — but they aren’t narrowing enough to make it the base case. At Ladbrokes, the odds have been cut to 5/1, implying a 17% probability, from 8/1, or an 11% chance, seen last week.

At Betfair, it’s an even longer shot, with an 11% probability the prime minister will resign before the new year. That, however, is up from the 5% chance seen last week.

“It’s been another challenging week for Theresa May, to put it lightly. Even her biggest supporters must be close to admitting that she may not be able to last much longer and the punters agree,” said Katie Baylis, a spokesperson at Betfair.

Betfair is giving May a 50-50 chance of making it through 2018 as the U.K. leader.

What are strategists saying?

• “Recent political scandals may further damage Theresa May’s thin majority. Outside the borders, the Brexit talks resume in Brussels. There is an increasing pressure on U.K. policy makers as time passes with no easy deal in sight,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group, in a note.

“Big U.S. banks demand more clarity as soon as early next year, if not they could start moving jobs out of London. A synchronized bank-exit would compromise London’s position as an influential global financial center,” she added.

• “Although we are optimistic that an EU/UK trade pact will eventually be agreed, all Brexit proceedings to date suggest that this could be a last minute compromise. In the meantime uncertainty is likely to weigh on U.K. investment and growth potential,” said Jane Foley, senior FX strategist at Rabobank, in a note.

What are markets doing?

The pound GBPUSD, >+0.1360% has been moving lower on uncertainty over May’s cabinet kerfuffle. Sterling was Friday down 1.1% for November so far, but was up compared to Thursday, trading at $1.3143

It’s still above its recent low of $1.3040 hit after the Bank of England last week hiked interest rates for the first time in a decade, but also struck a dovish tone about the potential for future rate hikes.

The yield on 10-year U.K. gilts TMBMKGB-10Y, >+0.00%  were up 4 basis points to 1.303% on Friday, while the FTSE 100 index UKX, >+0.12%  was up 0.1% at 7,492.29.

Source : https://www.marketwatch.com/story/is-british-leader-theresa-may-on-her-way-out-why-thats-the-fear-and-why-it-matters-2017-11-09

Is British leader Theresa May on her way out? Why that’s the fear — and why it matters
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