Prime Minister Theresa May managed to convince EU leaders to grant the U.K. more time before it leaves the bloc, but experts say her days in office are now numbered.
“A six-month period is clearly enough for the Conservative Party to contemplate a change in leadership while still allowing some time for the incoming PM to seek to negotiate with the EU,” J.P. Morgan economist Malcolm Barr said in a research note Thursday.
“One could even cram a general election into that time frame too if PM May were to resign by roughly the end of May.”
More tumult in British politics is expected despite a reprieve from Brussels on Wednesday night, with EU leaders agreeing to a “flexible extension” of the Brexit deadline until October 31, following a request from May.
The U.K. was initially meant to leave the bloc on March 29 but was granted an extension to April 12 with the British Parliament failing to agree on any exit deal. Then, when it was apparent that there was still no majority consensus for the deal on offer, May was forced to ask for more time.
Influential pro-Brexit members of her Conservative Party are unhappy at May’s decision and would have preferred a no-deal departure. Others balked at May’s withdrawal agreement with the EU which was seen as a “softer” Brexit that maintained a closer relationship with the bloc.
Time’s up for May?
Despite the Brexit extension Wednesday evening, May will still work to get her deal passed (which would allow the U.K. to leave earlier) and would like to do so before a May 22 cut-off point — after which the U.K. must take part in EU Parliamentary elections.
May had promised to step down if her deal was approved. She has already survived a vote of no confidence from within her own party last December (and technically another vote cannot be held within 12 months) but she could be forced to go if there is a dramatic revolt against her.
“I think this is the end of May,” James Crabtree, associate professor at the Lee Kuan Yew School of Public Policy, told CNBC.
“In theory, they can’t have another leadership campaign until December but if half of her cabinet resigns en masse, or if half of her parliamentary party say they want her to go — which they do — then her position becomes untenable.”
“She’s a very resilient prime minister and she’s hung on when we all expected her to collapse but I think her time is finally up.”
Crabtree said it was now a question of “when, not if” she goes. He also did not think a deal would pass by October, noting “there’s not a majority for anything.”
May’s plea for more time comes after months of infighting in the ruling Conservative Party, and the wider U.K. Parliament, over the direction and form Brexit should take with “Brexiteers” and “Remainers” largely holding to their positions.
May has been holding talks with opposition Labour leader Jeremy Corbyn in recent days in the hope that a compromise or alternative plan can be found, but this has so far proved elusive.
Brexit ‘horror story’
The new Brexit departure date of Halloween — which is likely to be the last deadline on offer to the U.K. — has not been lost on Brexit watchers.
“Brexit is now, officially, a horror story,” Barr noted, adding that the new departure date has removed any pressure on the Labour party to come to an agreement with May to ensure that a “no-deal” departure is avoided.
“The fact the ‘no deal’ deadline is now more than six months away serves to remove any real sense of urgency in the near term,” Barr added.
A sense of calm also pervaded markets Thursday morning, sterling was a touch lower against the dollar (at $1.3088) and the euro. London’s FTSE 100 index was trading lower. Daniel Lacalle, chief economist at Tressis Gestion, told CNBC Thursday that a delay means “very little” for investors in the U.K.
“The market right now is rightly discounting an agreement that may take a little bit longer or a little bit less but will ultimately happen,” he told CNBC’s “Squawk Box Europe.”
“If you look at the performance of the pound and gilts (U.K. sovereign bonds) in particular, you are seeing that investors are quite comfortable with the current situation and that the U.K. stock market is not affected by the challenges of Brexit.”
The British economy has so far proved more resilient than expected during the last two years of Brexit negotiations and uncertainty over a future relationship. U.K. gross domestic product grew by 0.3% in the three months to February 2019, data Wednesday showed. But economists question what effect the delayed departure could have on business investment.
“U.K. GDP growth will probably move sideways for a bit longer yet, perhaps averaging 1.5 percent this year,” Paul Dales, chief U.K. economist at Capital Economics said Thursday. “Of course, many developments could alter our forecasts, such as the state of the global economy, a change in prime minister, a general election, a change in government, a second referendum and what actually happens with Brexit,” he said in a note.