UK Politics: Could a summer election be on the cards? – The new Conservative Party leader, and de facto UK Prime Minister, will be announced on 22 July. Based on polling, it is highly likely to be Boris Johnson. However, it is not entirely clear that he will immediately become Prime Minister. Following a number of defections and by-election losses, the Conservatives have a parliamentary majority of just three, and this includes its ‘confidence and supply’ partner, the DUP. Given Mr Johnson’s outspoken willingness to pursue a no-deal Brexit (and his controversial character), it is possible that a handful of rebels declare their withdrawal of support for the new leader. This could prevent him from becoming Prime Minister, thereby forcing a general election. In another scenario, Mr Johnson could become PM but decide that a majority of three would not be workable, and call a snap election himself. A ComRes poll published today reveals that the Conservatives could end up with a 40 seat majority if Mr Johnson became leader. Other polling, which asks the more generic question of which party voters would support if there were an election held tomorrow, shows the Conservatives faring much worse. A PM Johnson could decide that the gamble is worth it.
How soon could an election happen, and what would the implications be? Legally, an election cannot be held until 17 days (i.e. 3-4 weeks) after the dissolution of parliament, so theoretically, an election could take place as soon as late August. The most recent snap election, in 2017, took place 6-7 weeks after being announced, but an election could happen more quickly given the urgency of the Brexit timetable (the new Article 50 deadline is 31 October). Should this scenario pan out, the uncertainty would weigh on markets in the near-term, and it is possible indeed that the recent weakness in sterling is in part being driven by this. Bigger picture, we continue to think a no-deal Brexit is unlikely, but the prospect of a PM Johnson has raised the probability, which we peg at 25% (vs 15% under PM May’s premiership). See our Revised Brexit Scenarios note for more. (Bill Diviney)