“News broke over the weekend that two Conservative Party MPs, Philip Lee and Guto Bebb, are planning to defect to the Liberal Democrats on 24 July – the very same day that the new Conservative leader (likely Boris Johnson) is set to become Prime Minister,” notes ABN AMRCO Senior Economist Bill Diviney.
“This would be enough for the Conservatives to lose their majority at a stroke, leading to a potentially imminent general election. We had flagged the prospect of an early snap election in the UK last week, and while unconfirmed, this latest development would raise that risk considerably.”
“We judge that even in the absence of defections, Mr Johnson will struggle to govern with such a wafer-thin majority, and that he might well choose himself to call an election, even if he is not forced to do so. While an election could ultimately lead to a more benign Brexit scenario if it leads to a Labour government or a ‘Remain’ coalition with the Liberal Democrats, the heightened uncertainty would likely weigh on markets and especially sterling in the near-term.”