Rabobank analysts point out that the UK PM Theresa May has said she will resign on 7 June, and her departure makes way for a Tory leadership contest that is likely to put a Brexit hardliner in the PM function with Boris Johnson regarded as the most likely winner.
“The new PM will probably try to renegotiate the EU-UK deal in order to change the Irish backstop, but the EU is expected to stand its ground.”
“If the UK government opts for a hard Brexit as a result, it will face firm opposition from the British parliament.”
“Such a conflict is likely to eventually lead to an early general election, a process that will need to be accommodated by a third extension of article 50 by the EU.”
“All in all, we see a delay of Brexit to 2020 as the most likely outcome, but the odds of a hard Brexit on 31 October are uncomfortably high.”
“A second referendum could play an important role in the electoral campaign and may open the door for the UK remaining in the EU in 2020.”
“The already elevated degree of uncertainty around Brexit may rise further in the coming months and will continue to weigh on the British economy.”