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UK: Theresa May facing vote of no confidence today

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Theresa May has to face a vote of no confidence in the British Parliament today. The canceled vote on the Brexit deal caused a stir in the British House of Commons. More than 48 members of the parliament demanded a vote.

The vote in the lower house will be held this evening. For Theresa May it will be difficult to survive the day politically. Even if the prime minister would win the vote, a resignation cannot be ruled out. The number of rejections within the Conservative Party will be large - so large that it will be difficult to carry on with them.

Within the governing Tories, the pro-Brexit camp is already preparing for a takeover. According to British bookmakers former Brexit minister Dominic Raab as well as Boris Johnson have the biggest chance to become the successor of Theresa May. In such a case, new elections would not be expected in the short term. However, succession takes time. As a new prime minister would have to seek talks with Brussels and as the deadline for Britain’s remain in the EU expires on 29 March, there is much that speaks in favor of extending the deadline - subject to Brussels approval.

To be clear: If the Brexiteers take the command in London, a hard Brexit becomes more likely. But this is not determined yet. Since a hard break with the European mainland could plunge the UK into economic chaos, the question remains whether the anti-EU front wants to face this responsibility? It should be remembered that the British people would suffer from a possible recession. Voters could blame the Conservative Party. Therefore, Dominic Raab or even Boris Johnson (or someone else) would have to try to find a solution with Brussels.
The best options would certainly be new elections or a second referendum. The situation is so difficult that a solution just can be found with the help of the people's will.

The British pound has come under pressure in recent days. The financial markets smelled bad news. As there is still uncertainty about the future of Great Britain, the pound is unlikely to swing in one direction or the other in the short term. Therefore, it is reasonable that the British currency will remain close to current levels in the upcoming weeks. Since we still consider a soft Brexit as the most likely options, the pound has potential for appreciation in the longer term. But it seems that we have to wait some time.

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Thomas Gitzel
Chief economist, VP Bank Group

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