Analysts fear Brexit delays after the Theresa May confidence vote

City analysts think Brexit could be delayed if Theresa May is ousted as UK prime minister later today (Wednesday).

“One thing is clear: if Mrs May loses, Brexit will have to be delayed,” Fawad Razaqzada, market analyst at Forex.com, said on Wednesday morning. “Whoever the next PM might be, he or she will have to apply for an extension to Article 50 and push back the official exit date of 29th March.”

ING economist James Smith also said on Wednesday that the chances of Brexit being delayed were rising.

Andy Scott, associate director at financial risk consultancy JCRA, said: “If a former Remainer took the keys to Number 10, we would expect there to be a delay to Article 50 to allow time for further negotiations.”

Theresa May is fighting to cling on to her job on Wednesday after a vote of no confidence in her was tabled by her own party.

If May loses, it will trigger a leadership election within the ruling Conservative party. Boris Johnson is the favourite to replace May at the top of the party, although the betting market currently expect May to survive the challenge.

The leadership challenge comes just months before Britain is due to officially leave the European Union and as a deal on the exit details has yet to be officially ratified.

Here’s what City analysts are saying on Wednesday about what all this could mean for Brexit, stocks, and the pound:

Nomura: ‘If she loses that’s a big negative for GBP’

George Buckley and Jordon Rochester, UK economists at Nomura: “If Theresa May survives the vote tonight, she has 12 months where the party cannot trigger another contest. She would be able to make moves on Brexit (such as extending Article 50, calling a referendum etc.) that European Research Group types don’t like but their leverage would have diminished. We’d expect a 1-2% move [in the pound] higher.

READ MORE: Pound jumps as Theresa May pledges to contest leadership challenge ‘with everything I’ve got’

“If she loses that’s a big negative for GBP, I’d expect a 3% move lower within days. We’ve already fallen a long way, but the assumption from markets will be that her replacement would be a harder Brexit type. It would take weeks and if it went to a vote between a Brexiteer vs a remain type, the Brexiteeer would likely win among the membership.”

ING: ‘There is an increasing probability that the Brexit date will need to pushed back’

James Smith, a developed markets economist at ING: “A victory today could give her some political clearance to seek a broader Brexit consensus across the House of Commons. In our view, that would boost the odds of either a softer Brexit (e.g. ‘Norway Plus’) or a second referendum, which are the most likely options to garner a majority across Parliament.

“However, it seems unlikely any of this would happen until after May’s deal has been put to a vote in Parliament, which we feel could still come much later into Q1 (given the debate over whether the 21 January deadline is still legally binding). We also think there is an increasing probability that the 29 March Brexit date will need to pushed back.

“In the meantime, the lack of clarity and elevated risk of ‘no deal’ is set to see economic activity slow further (we expect growth to halve in the fourth quarter relative to the third), while keeping pressure on the pound.”

UBS: ‘It might be quite useful if someone were to run the country’

Paul Donovan, chief economist at UBS Wealth Management: “Investors may feel that time spent arguing about who runs the country is time not spent running the country, and if a hard exit (which investors do not want) is to be avoided, it might be quite useful if someone were to run the country.”

Berenberg: ‘We see only a 10% risk of a hard Brexit’

Kallum Pickering, senior economist at Berenberg: “Just like May now, a new Conservative leader and PM will be hemmed in by the already agreed Brexit process and parliamentary arithmetic.

“Four factors suggest a change in the Conservative leader doesn’t affect the outlook for Brexit much: 1) Two-thirds of parliament is still pro-EU; 2) parliament still has a meaningful vote on the final Brexit deal; 3) the government still has to bring forward a plan – whatever it may be – by the 21 January; and 4) parliament would still get to vote on a hard Brexit.

“While the leadership contest raises uncertainty, we see only a 10% risk of a hard Brexit. However, the extra delay tilts the risks to the upside.”

Hermes Investment Management: ‘We are on track for a ‘no’ outcome’

Eoin Murray, head of investment at Hermes Investment Management: “First and foremost we should recognise that this is not a vote of no confidence in the government, which would have triggered a general election, although that may still be forthcoming should opposition leader Jeremy find his courage.

“If anything, this move takes us a step closer to our base case, that we are on track for a ‘no’ outcome of one flavour (no Brexit deal) or the other (no Brexit). But there is plenty more in this to run.”

Forex.com: ‘If Mrs May loses, Brexit will have to be delayed’

Fawad Razaqzada, market analyst at Forex.com: “A surprise defeat for the prime minister…could delay the Brexit process even further. But the pound is unlikely to go anywhere fast because Brexit uncertainty won’t go away even if the PM wins the confidence vote tonight.

READ MORE: Here’s who betting markets think could replace Theresa May as prime minister

“While it looks unlikely that the Prime Minister will lose tonight, nothing surprises me anymore when it comes to UK politics. But one thing is clear: if May loses, Brexit will have to be delayed – whoever the next prime minister might be, he or she will have to apply for an extension to Article 50 and push back the official exit date of 29 March. Indeed, it could take at least a month before a new PM is chosen.

“Even if May survives the confidence vote, it does not necessarily mean MPs will eventually back her Brexit plan despite any reassurances – written or otherwise – she might get from Brussels. So make no mistake about, uncertainty is here to stay well into the New Year.”

JCRA: ‘If, Theresa May wins, that would leave us back where we were on Monday’

Andy Scott, associate director at financial risk consultancy JRCA: “If, as looks likely, Theresa May wins tonight’s vote, that would leave us back where we were on Monday, but without the risk of a change of leader unless she resigns.

“If however she loses, there’s the risk of a Brexiteer becoming PM and a hard Brexit in March. This scenario would cause further weakness for Sterling due to the higher risks to the economy.

“Alternatively, if a former Remainer took the keys to Number 10, we would expect there to be a delay to Article 50 to allow time for further negotiations. This scenario would be relatively neutral for sterling which is currently dealing at historically weak levels against its major counterparts.”

CMC Markets: ‘It will lance a boil’

Michael Hewson, chief market analyst at CMC Markets: “Tonight’s vote doesn’t change the binary choice facing MPs between May’s deal and any other alternative, and in a perverse way tonight’s vote can be seen as a good thing as it will lance a boil that has been festering for a few months now.

“The unfolding political uncertainty might not be as high if we had an anyway coherent opposition, however even here sadly that is lacking which only adds to the overall feelings of uncertainty facing businesses across the UK.”

Markets.com: ‘A new Tory leader could create a new General Election’

Neil Wilson, chief market analyst at Markets.com: “The question for the pound is not who the leader is per se, but what it means for Brexit. A new Tory leader, depending on who it is and what parliamentary support he or she can command, could create the necessary conditions for a new general election, a situation that would undoubtedly ramp up the political risk premium for UK assets.”

XTB.com: We could see ‘a relief rally in the pound’

David Cheetham, chief market analyst at XTB.com: “Sterling has lost 1-2% against the dollar, euro and yen so far this week and given the level of negative developments this is a relatively muted depreciation. A move back to the post-referendum lows around the $1.20 mark, or even lower, can’t be ruled out if May is ousted but this isn’t the base-case scenario.

“It appears that Theresa May has more than a fair chance of winning the leadership contest and if she does by a significant margin it would serve to embolden her position and could well lead to a relief rally in the pound.”