So far Sterling and Japanese and European equity markets have borne the brunt of the initial shock, while the FTSE is down only 3.3% since Thursday and most major and emerging market currencies have been reasonably well behaved (see Figure 1). But there are still far many more questions than answers and the situation remains extremely fluid. For starters there is no precedent for a country leaving the EU and thus no clear-cut rulebook to rely on. The government has limited institutional capacity to start negotiations with the UK’s 27 EU partners until Article 50 of the Lisbon Treaty is triggered and no timeline has been provided for when this will happen (assuming it is triggered at all). Perhaps unsurprisingly given the mammoth task ahead, the Leave campaign leaders have been very short on specifics regarding the mechanics and timing of the UK’s exit from the EU, the likely shape of future trade treaties and national policies such as immigration. Prime Minister Cameron’s de-facto resignation and wholesale changes in personnel in the opposition Labour Party are adding to the head-scratching. Moreover, it is not one country seeking to leave the EU, but a union of four countries – England, Wales, Scotland and Northern Ireland – which further complicates matters as both Scotland and Northern Ireland seem intent on remaining part of the EU and potentially breaking free from the UK. At this point in time, all we can do is take stock of what we know (or at least we think we know) and what we don’t know (but can tentatively try to forecast). I would conclude, as I did in Europe – the Final Countdown (21 June 2016), that the many layers of political, legal, economic and financial uncertainty are likely to keep UK investment, consumption and employment, as well as Sterling on the back-foot for months to come. Financial market volatility is also likely to remain elevated in coming weeks. In this context the US Federal Reserve is likely to keep rates on hold in coming months and the European Central Bank can probably afford to do little for the time being. The Bank of England is likely to seriously contemplate cutting its policy rate while the Bank of Japan will be under renewed pressure to curb soaring Yen strength. Of course, British policy-makers and business associations have come out and said the right things in order to limit the carnage and contagion. But they have far more limited room to reflate the economy and fade gyrations in financial markets than they did during the 2008-2009 great financial crisis. They are not in control at this juncture and it is not obvious who is.

1. 1
Brexit: More questions than answers
The UK, the world and financial markets have now had five days to digest the British
electorate’s vote to leave the EU and its impact on UK and global asset prices.
So far Sterling and Japanese and European equity markets have borne the brunt of the
initial shock, while the FTSE is down only 3.3% since Thursday and most major and
emerging market currencies have been reasonably well behaved (see Figure 1).
But there are still far many more questions than answers and the situation remains
extremely fluid.
For starters there is no precedent for a country leaving the EU and thus no clear-cut
rulebook to rely on. The government has limited institutional capacity to start negotiations
with the UK’s 27 EU partners until Article 50 of the Lisbon Treaty is triggered and no
timeline has been provided for when this will happen (assuming it is triggered at all).
Perhaps unsurprisingly given the mammoth task ahead, the Leave campaign leaders have
been very short on specifics regarding the mechanics and timing of the UK’s exit from the
EU, the likely shape of future trade treaties and national policies such as immigration.
Prime Minister Cameron’s de-facto resignation and wholesale changes in personnel in the
opposition Labour Party are adding to the head-scratching.
Moreover, it is not one country seeking to leave the EU, but a union of four countries –
England, Wales, Scotland and Northern Ireland – which further complicates matters as both
Scotland and Northern Ireland seem intent on remaining part of the EU and potentially
breaking free from the UK.
At this point in time, all we can do is take stock of what we know (or at least we think we
know) and what we don’t know (but can tentatively try to forecast).
I would conclude, as I did in Europe – the Final Countdown (21 June 2016), that the many
layers of political, legal, economic and financial uncertainty are likely to keep UK
investment, consumption and employment, as well as Sterling on the back-foot for months
to come. Financial market volatility is also likely to remain elevated in coming weeks.
In this context the US Federal Reserve is likely to keep rates on hold in coming months and
the European Central Bank can probably afford to do little for the time being. The Bank of
England is likely to seriously contemplate cutting its policy rate while the Bank of Japan
will be under renewed pressure to curb soaring Yen strength.
Of course, British policy-makers and business associations have come out and said the
right things in order to limit the carnage and contagion. But they have far more limited
room to reflate the economy and fade gyrations in financial markets than they did during
the 2008-2009 great financial crisis. They are not in control at this juncture and it is not
obvious who is.

2. 2
Figure 1: Sterling and Japanese and European equity markets have borne brunt of initial shock
Source: investing.com, Federal Reserve,Bank of England, Eurostat
Note: * Nominal Effective Exchange Rate; ** GDP weighted basket of Nominal Effective Exchange Rates comprising CNY,
IDR, INR, KRW,MXN,MYR, PHP, PLN, RUB, SGD, THB, TRY, TWD and ZAR
UK Economy
What we know
 As I wrote in EU Referendum survey results (18 May 2016), there has been mounting evidence that in
the run-up to the referendum domestic and foreign companies curtailed or delayed investment in the
UK, with domestic companies also prone to freezing hiring.
 UK gross fixed capital formation, seasonally-adjusted, increased only 0.5% quarter-on-quarter in Q1
despite a 1.1% contraction in Q4 2015 – the largest contraction in over three years (see Figure 2).
Similarly, business investment shrunk a further 0.5% qoq in Q1 2016 following a 2% qoq contraction in
Q4 2015 – the second and third largest quarterly contractions in six years which more than wiped out
the growth in the previous two quarters (see Figure 2). Unsurprisingly business and consumer
confidence remains depressed (see Figure 3).
 Weak investment capped GDP growth at only 0.4% qoq in Q1 2016 (see Figure 4).
 A number of UK and foreign companies have said publicly stated in recent days that they had already
activated contingency plans to move some operations abroad.
 More positively, improved currency competitiveness had seemingly already contributed to a recent
rebound in UK exports (see Figure 5). Even prior to Sterling’s collapse in the past 72 hours, a weighted
-10
-8
-6
-4
-2
0
2
4
6
FTSE Dow
Jones
Nikkei Dax CAC 40 GBP* EUR* USD* JPY* EMG
basket**
% change since 23 June 2016

3. 3
basket of Sterling’s exchange rates against the currencies of its main trading partners – its nominal
effective exchange rate (NEER) – had weakened about 7% since mid-August.
 S&P on 27th
June downgraded its AAA-credit rating one notch to AA with a “negative” outlook and Fitch
also downgraded Britain’s credit rating to AA from AA+. Moody's on 25th
June cut the outlook on its
Aa1 credit rating to “negative” from “stable”, often a precursor to a full credit rating downgrade.
Figure 2: Business investment and gross fixed
capital formation growth was again weak in Q1…
Figure 3: …and business and consumer
confidence remain depressed…
Source: Office of National Statistics Source: Gfk, Markit Economics
Figure 4: …contributing to GDP growth slowdown
in Q1 2016
Figure 5: More competitive Sterling likely driving
stronger UK exports of goods and services
Source: Office of National Statistics Source: Office of National Statistics
Note: * Seasonally adjusted annualised rate (%)
-6
-4
-2
0
2
4
6
8
2012
Q2
2013
Q1
2013
Q4
2014
Q3
2015
Q2
2016
Q1
Business investment
Gross fixed capital formation
quarter-on-quarter % change
(seasonally adjusted)
-6
-4
-2
0
2
4
6
8
48
49
50
51
52
53
54
55
56
57
58
Apr-14 Dec-14 Aug-15 Apr-16
UK manufacturing PMI, left scale
UK (gfk) consumer confidence
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
2012
Q1
2012
Q4
2013
Q3
2014
Q2
2015
Q1
2015
Q4
UK real GDP, quarter-on-quarter % change
(seasonally adjusted)
-20
-15
-10
-5
0
5
10
15
20
25
Dec-12 Oct-13 Aug-14 Jun-15 Apr-16
Exports Imports
UK trade in goods and services, GBP-value,
quarter-on-quarter saar*

4. 4
What we don’t know
 The net impact on the economy cannot yet be quantified with any degree of certainty. But the political,
legal, economic and financial uncertainty currently prevailing is likely to have a negative impact on UK
domestic investment, consumption and employment near-term. The longer this period of limbo extends
the greater the likely damage to the UK (and EU) economies.
 Foreign direct investment and capital inflows into the UK are also likely to fall further until there is
greater UK policy certainty and it becomes clearer whether asset prices have stabilised. This does not
preclude tactical investments by foreigners attracted by a cheaper Sterling.
 A more competitive currency could buoy tourism and further drive UK exports particularly to non-EU
countries. But the Sterling cost of imports has already ticked up (see Figure 5) and UK exporters are
still likely to face an uncertain trading environment with the EU and weak global demand. Therefore
any narrowing of the UK’s trade deficit in goods and services is unlikely to be significant near-term.
 The likely decrease in receipts from direct investment and portfolio investment abroad and increase in
payments to foreign direct investors is also likely to limit any significant narrowing of the record-high
7% of GDP current account deficit recorded in Q4 2015 (see Figure 6).
 The fall in UK and global equities and bond yields is likely to put further pressure on UK pension funds.
 Beyond the effects of Brexit, the government still needs to address the residual problem of low
productivity growth, tepid wage growth despite a low unemployment rate (see Figure 7), still-high levels
of household debt and fiscal deficits.
 There is limited room for interest rate policy to stimulate growth as the BoE policy rate is already at an
all-time low of 0.5%.
 Similarly, there is limited room for fiscal policy reflation as the Treasury, which remains for now
committed to fiscal prudence, is likely to be hampered by weaker economic activity and lower fiscal
revenues. Chancellor Osborne has warned that the interim budget to be announced in October may
have to include tax increases.
 The recent credit rating downgrades will at the margin likely entail higher borrowing costs for both the
government and businesses, putting further pressure on government finances.

5. 5
Figure 6: Elevated UK trade and current account
deficits…even with UK in EU
Figure 7: Despite record-low unemployment, UK
real earnings growth struggling to stay above 2%
Source: Office of National Statistics
Note: Latest data point for goods and services trade
deficit is for April 2016
Source: Office of National Statistics
Bank of England monetary policy
What we know
 The governor of the Bank of England (BoE), Mark Carney, said in a statement on Friday 24th
June that
the BoE “was “well prepared for this” […]. The Treasury and the Bank of England have engaged in
extensive contingency planning and the Chancellor and I have been in close contact, including through
the night and this morning. The Bank will not hesitate to take additional measures as required as those
markets adjust and the UK economy moves forward. […]. The Bank of England is also able to provide
substantial liquidity in foreign currency, if required”.
 There have been various reports in recent weeks that the BoE would either have to hike its record-low
policy rate to curb imported-inflation or cut rates to support growth in the event of an economic
downturn. Carney in his statement said that “In the coming weeks, the Bank will assess economic
conditions and will consider any additional policy responses”. The BoE is currently scheduled to hold
policy meetings on 24th
July, 4th
August, 15th
September, 13th
October, 3rd
November and 15th
December (see Figure 8).
2
4
6
8
10
12
14
20
40
60
80
100
120
2009
Q4
2011
Q2
2012
Q4
2014
Q2
2015
Q4
Current account, 4-quarter rolling (left scale)
Trade in goods and services, 3-month rolling
UK trade and current account deficits (£ bn)
4
5
6
7
8
9
-12
-10
-8
-6
-4
-2
0
2
4
6
Jan 07 Feb 09 Mar 11 Apr 13 May 15
Real weekly earnings inc bonuses,
% year-on-year
Unemployment rate, % (right scale)

6. 6
Figure 8: A heavy calendar of key data releases and events
Source: investing.com, US Bureau of Labour Statistics, US Bureau of Economic Analysis, US Federal Reserve, US Census
Bureau, ECB, Bank of England, UK Conservative Party, Bank of Japan
What we don’t know
 The BoE has not confirmed whether it has intervened in the FX market to support Sterling or at least
smooth its path. But Sterling’s seismic collapse since the referendum result suggests that the BoE has
so far stayed on the sidelines (or less likely that the intervention was modest and/or ineffectual). The
BoE will have learnt its lesson from 1992 when it used up billions of FX reserves to unsuccessfully
defend Sterling and keep the UK in the Exchange Rate Mechanism. Moreover, all other things being
equal, the BoE may welcome a degree of currency weakness to the extent that it boosts UK exports
and tourism revenues and may in time encourage foreign investment in the UK.
 The BoE will likely first want to assess the referendum result’s impact on the UK economy before
deciding whether to cut, hike or stay on hold. However, I would argue that the risk is tilted towards the
BoE cutting its policy rate by 25bp or 50bp given the likely negative shock to the UK economy,
including to consumer and business confidence, investment, consumption, employment, housing prices
and fiscal revenues. The BoE also has the option of another round of quantitative easing but this is still
likely to be a measure of last resort.
June-December 2016: Selected key dates & events
28-Jun Leadership ballot for UK Labour opposition party
28-29 Jun European Council meeting to discuss UK referendum result
06-Jul Minutes of 15 June Fed policy meeting
08-Jul US non-farm payrolls and labour market data (June)
21-Jul European Central Bank policy meeting
24-Jul Bank of England policy meeting
27-Jul US FOMC policy meeting
29-Jul US Q2 2016 GDP (advance estimate)
29-Jul Bank of Japan policy meeting
04-Aug Bank of England policy meeting
08-Sep European Central Bank policy meeting
15-Sep Bank of England policy meeting
21-Sep US FOMC policy meeting
October Interim UK budget to be announced
2-5 Oct Conservative Party Conference
13-Oct Bank of England policy meeting
20-Oct European Central Bank policy meeting
28-Oct US Q3 2016 GDP (advance estimate)
02-Nov US FOMC policy meeting
03-Nov Bank of England policy meeting
08-Nov US Presidential elections
08-Dec European Central Bank policy meeting
14-Dec US FOMC policy meeting
15-Dec Bank of England policy meeting

7. 7
Sterling
What we know
 Sterling is currently trading around 1.34 versus the US dollar, off its recent 31-year low but still down
about 10% since it became clear at about 2am on Friday 24th
June that the Leave vote had won the
referendum.
 The Sterling NEER has depreciated about 8% since Thursday and 15% from its multi-year high
recorded in August 2015 (see Figure 9), with similar losses against the Euro and other currencies (see
Figure 10), according to my estimates.
Figure 9: Sterling NEER is down 8% since
Thursday and 15% since multi-year high in August
Figure 10: Sterling’s collapse vs euro matched by
collapse vs other main trading partner currencies
Source: investing.com Source: investing.com
 Indeed Sterling’s collapse since Thursday has been pretty uniform as Figure 11 shows, although the
Yen’s rally has led to a 13% collapse in the GBP/JPY cross since the referendum.
100
105
110
115
120
125
Apr 14 Oct 14 Apr 15 Oct 15 Apr 16
GBP Nominal Effective Exchange Rate
(23 April 2010 = 100)
90
95
100
105
110
115
120
125
130
Apr 10 Sep 11 Feb 13 Jul 14 Dec 15
GBP vs other key trading
partner currencies
GBP/EUR
Index (23 April 2010 = 100)

8. 8
Figure 11: Sterling collapse has been broadly uniform, but particularly acute against rallying Yen
Source: Bank of England, Eurostat, investing.com, US Federal Reserve
What we don’t know
 Assuming ongoing legal, political, economic and financial uncertainty, capital account outflows from the
UK are likely near-term to continue to overwhelm any modest competitiveness-driven narrowing of the
large UK current account deficit. The risk is therefore that Sterling remains under pressure in coming
weeks, interspersed by short-lived bounces.
 Medium-term, a weaker currency may well drive a rebound in UK growth – assuming that the political
and economic outlook has started to clear – in turn attracting capital inflows and investment into the
UK. This could be the turning point for Sterling but picking the timing of this turning point at present is
akin to playing the violin on the Titanic – laudable but risky.
UK equities and bonds
What we know
 The FTSE-100 is down about 3.3% since Thursday with financial stocks among the hardest hit.
Barclays and Royal Bank of Scotland yesterday suspended trading in their shares for five minutes as
the 10% fall in the price of their shares triggered automatic circuit breakers.
 The yield on UK 10-year government bonds fell to 0.93% – below 1% for the first time ever – as
investors continued to sell shares in favour of safe-haven assets such as bonds and gold.
-35
-30
-25
-20
-15
-10
-5
0
JPY RUB HKD USD INR CNY SGD TRY NEER CHF CAD DKK CZK EUR AUD NOK PLN SEK
Since August 2015 Since 23 June 2016
% change in sterling vs currencies of UK's main trading partners

9. 9
Major central bank monetary policies and FX
What we know
 Developed currency markets have been reasonably well behaved (everything is relative). The
exceptions of course are the contrasting Sterling and Yen, which have converged to the same level in
NEER terms when April 2016 is used as the base (see Figure 12).
 The Euro NEER has remained remarkably stable at the lower-end of its year-to-date 4% range.
 The US Dollar NEER has appreciated about 2% since the referendum to a three-month high, while the
Dow Jones is down 3.6% to a three-month low.
 The Yen has been the stand-out performer in recent sessions, appreciating 13% versus Sterling and
5.2% in NEER terms (see Figure 12), in turn weighing on the Nikkei which is currently down 6.4% since
last Thursday (see Figure 1).
Figure 12: Post referendum, Sterling has collapsed, Yen surged…and euro remained stable
Source: Bank of England, Eurostat, investing.com, US Federal Reserve
What we don’t know
 The ECB, which holds its next policy meeting on 21st
July, is likely to continue to allow markets to
dictate the euro exchange rate. It may even tacitly welcome the small boost to the euro’s
competitiveness to the extent that it supports sizeable eurozone exports at a time of still modest
eurozone growth and global demand.
70
80
90
100
110
120
130
140
May 10 Feb 11 Nov 11 Aug 12 May 13 Feb 14 Nov 14 Aug 15 May 16
JPY USD EUR GBP
Nominal effective exchange rates 23 April 2010 = 100)

10. 10
 Yen and Nikkei price action is likely to accentuate the need for (and market expectation of) renewed
Bank of Japan monetary policy easing at its next meeting on 29th
July, in the form of rate cuts and/or
beefed-up quantitative easing. As often the case in the past, the BoJ will likely have to deliver more
than is expected in order to have any meaningful and lasting impact on the Yen and equities.
 The Fed is very unlikely to hike its policy rate on 27th
July, irrespective of the strength of US data
(including June non-farm payrolls) in coming weeks. The Fed made clear in its June policy meeting
minutes that the UK referendum presented significant event risk and the collapse in global equity
markets and surge in volatility is likely to keep the Fed on hold in months to come.
Emerging Markets
What we know
 A GDP-weighted basket of emerging market NEERs is broadl flat since Thursday (see Figure 13), with
the majority of EM currencies (including the Chinese renminbi) up or down by less than 1%. However,
the South African Rand, Mexican Peso and Korean Won are down 3.4%, 3.0% and 1.5% respectively.
Figure 13: A basket of EM currencies is unchanged since Thursday but some differentiation
Source: investing.com, Federal Reserve
What we don’t know
 The Bank of Korea (BoK) is likely to welcome the competitiveness-boost to exports and will not be
overly worried about imported-inflation. It is therefore unlikely to dip into admittedly significant FX
reserves to stop, let alone reverse, the Won’s recent and modest depreciation although it decreases
the odds of the BoK cutting its policy rate from an already record-low.
-4
-3
-2
-1
0
1
2
3
4
ZAR MXN KRW PLN PHP TWD SGD MYR CNY EM
NEER
THB INR TRY IDR RUB BRL
% change in nominal effective exchange rate since 23 June 2016

11. 11
 With inflation still near 6%, the South African Reserve Bank may have an incentive to slow any further
Rand depreciation but the modest size of its FX reserves may curb its appetite for heavy and/or
sustained FX intervention.
 The central banks of Brazil and Russia are unlikely to aggressively intervene against the still modest
appreciation in their currencies as inflation remains stubbornly high in both countries.
Referendum result
What we know – which is a lot but somewhat counter-intuitivelymakes it harder
 The British electorate voted to leave the EU in last Thursday’s referendum by 52% vs 48%, according
to the official result published by the Electoral Commission. Turnout was 71.8%, with more than 30
million eligible voters voting. There was no legal minimum turnout threshold but it was the highest
turnout in a UK-wide vote since the 1992 general election.
 The UK Lower House of Parliament (the House of Commons) will most likely have to vote on whether
to trigger Article 50 of the Lisbon Treaty which in effect starts the procedure by which the UK
negotiates its exit from the EU1
. There is no precedent of the House of Commons voting against a
referendum result and the UK Parliament website states that “The UK public elects Members of
Parliament (MPs) to represent their interests and concerns in the House of Commons”.
 But the referendum was set up such that it is not legally binding on the UK government or parliament.
The UK Parliament website states that: “The national result, once declared, will be final but it is not
legally binding. The European Referendum Act 2015 does not include provisions to implement the
result of the referendum; legally, the Government is not bound to follow the outcome. However, it would
be very unlikely for the Government to ignore the outcome of the referendum”.
 The House of Commons could legally vote in favour of remaining in the EU on the basis that it is in the
best interest of the UK public. About three-quarters of the current members of the House of Commons
are pro-EU (see Figure 14) and they could in theory easily win a simple-majority vote not to trigger
Article 50. However, there is no such precedent and if the House of Commons went against the will of
the majority of the electorate this could be seen as an attack on the principles of democracy and
intensify popular pressure on parliament to hold new elections.
 If the House of Commons does vote in favour of triggering Article 50, the UK government would then
have to either verbally or in writing inform the European Council of its formal decision to leave the EU.
No timeline has yet been put forward for when House of Commons may vote on Article 50 or when the
government may officially notify the European Council. Cameron has only said that it would be a matter
for his successor to contend with.
1 The UK Parliament concludes that “Should the UK decide to withdraw from the EU, the UK Parliament should have
enhanced oversight of the negotiations on the withdrawal and the new relationship, beyond existing ratification
procedures”.

12. 12
 If the government did officially notify the European Council of its intention to take the UK out of the EU,
at this point the European Council would have up to two years (or more if both parties agree) to vote by
a qualified majority to approve the terms and conditions of the UK’s exit from the EU, as per Clause 3
of Article 50. So, even if the UK government and/or House of Commons triggered Article 50, in practise
the UK would remain an EU member for up to two years or more. The European Council would be very
unlikely to vote against the UK’s exit from the EU.
 The UK’s exit procedure from the EU is in theory irreversible. The Lisbon Treaty does not allow for a
member state to turn negotiations on the terms and conditions of its exit from the EU into negotiations
on a new membership deal. In theory, if that member state changed its mind it would once again have
to go through the complex process of re-admission to the EU.
What we don’t know
 The leaders of the leave camp, Boris Johnson and Michael Gove, have stated that there should be no
rush to start the UK’s exit from the EU. There are a number of reasons behind this tactic to delay.
First, from a practical perspective, Boris Johnson has limited executive powers as he is not a member
of the Cabinet, the UK government’s decision-making body. Michael Gove, who is Lord Chancellor and
Secretary of State for Justice, is one of the twenty one Cabinet members and will therefore in all
likelihood have to translate the wishes of the Leave campaign to the Cabinet. Moreover, the FT points
out that it is significant that Brexit policy has been delegated to the Cabinet Office – a small department
responsible for supporting the Prime Minister and Cabinet with little weight domestically or influence
abroad – not the Treasury or the Foreign Office. This highlights the lack of urgency.
Second, the Leave leaders presumably want to delay as long as possible in order to give themselves
time to get to grips with the enormity of the task ahead. “Everyone has a plan until they get punched”,
as former heavyweight boxer Mike Tyson famously once said. Recent statements from senior Leave
leaders, including Ian Duncan Smith, suggest that at best they only have a very tentative outline of a
plan for the UK’s exit from the EU and renegotiation of its trade deals with EU partners. Until there is
clarity on these complex issues, the Leave leaders are also likely to remain very vague with regards to
national issues such as immigration and how extra funds (if any) will be spent.
Conversely, EU leaders have stated that the exit procedure should start without delay, partly because
of their fear that a drawn-out process could exacerbate the risk of other EU countries pushing for their
own referenda on EU membership. But the EU cannot legally force the UK into triggering Article 50.
 The longer this period of limbo extends, the greater the risk that of Article 50 not being triggered and an
alternative path being sought in my view. This could include another Scottish independence
referendum, another UK referendum on EU membership (less likely) and early general elections (see
below).

13. 13
Figure 14: About three quarters of members of lower house of parliament are pro-remain
Source: UK Parliament, various
Note: * Ruling party; ** three members are currently suspended
Next general elections
What we know
 The next general elections are scheduled for 7th
May 2020. The Fixed-term Parliaments Act 2011
states that a 2/3 majority in the House of Commons (434 votes) is required to dissolve parliament and
trigger early general elections.
What we don’t know
 The probability of early general elections is low at this juncture. Conservative members who won a
surprisingly large 330 seats in last May’s general election would likely be reluctant to vote for snap
elections in which they may win a far smaller number of seats. Similarly, the 229 Labour members of
parliament may be fearful that their leaders’ tepid backing of EU membership and recent personnel
upheavals could see support from their mostly pro-EU voters dwindle and significantly cut their number
of seats in a new parliament. Only the Scottish National Party (SNP), which has 54 seats, and a
handful of smaller parties such as UKIP and the Liberal Democrats, which won only a small number of
seats in the 2015 elections, would have a strong incentive to vote for snap elections.
Members of Lower House of Commons Remain Leave Undecided Total
Conservatives* 177 135 18 330
Labour 216 10 3 229
SNP 54 0 0 54
Liberal Democrats 8 0 0 8
DUP 0 8 0 8
Independents / suspended ** 1 0 4 5
Sinn Fein 4 0 0 4
Plaid Cymru 3 0 0 3
SDLP 3 0 0 3
UUP 2 0 0 2
UKIP 0 1 0 1
Greens 1 0 0 1
Vacant 0 0 1 1
Speaker 0 0 1 1
Total 469 154 27 650

14. 14
Next prime minister
What we know
 Prime Minister David Cameron announced on 24th
June that he would step down before the next
Conservative Party Conference in Birmingham on 2-5 October, effectively handing in his three-month
notice. The executive of the 1922 Committee of backbench Conservative MPs is set to meet to draw up
the timetable for the Conservative Party leadership contest.
 Candidates must be nominated by any two Conservative Party MPs. A series of ballots among
Conservative Party MPs is held until there are only two candidates remaining at which point eligible
Conservative Party members elect the new leader2
.
What we don’t know
 Boris Johnson and Theresa May, the Home Secretary, are currently the two front-runners vying for the
leadership of the Conservative Party and become the new prime minister, according to recent opinion
polls and bookmakers’ prices. Michael Gove, State Secretary for Justice and co-leader of the Leave
campaign, has endorsed co-leader and former mayor of London Boris Johnson.
Scotland and Northern Ireland – The politics of devolution
What we know
 Nicola Sturgeon, First Minister of Scotland, has said that Scotland wanted to remain part of the EU and
she would start preparing legislation to enable another referendum on Scottish independence, despite
having lost such a referendum two years ago. She would then seek for an independent Scotland to (re)
gain EU membership.
 All 54 SNP MPs are reportedly in favour of the UK staying in the EU (see Figure 14). All 32 Scottish
regions and about 62% of the eligible Scottish electorate voted in favour of Remain in last week’s
referendum – the highest regional percentage according to the official count.
 The President of the Northern Irish Sinn Fein party has hinted at a new bid to re-unify Northern Ireland
(part of the UK) and the Republic of Ireland (an independent state which has the euro and will continue
to be an EU member).
2 If only one candidate stands (as happened in the 2003 leadership election) then they are elected uncontested. If two
candidates stand, then the election immediately proceeds to a ballot of all members of the party. If more than two
candidates stand, then MPs first hold a series of ballots to reduce the number to two. In each round, the candidate
with the fewest votes is eliminated. Candidates may also withdraw between rounds (as it also happened in the 2001
contest). The series of ballots by MPs continues until there are only two candidates remaining. At this point the all-
member ballot begins; this lasts for some weeks. The candidate who tops the poll is declared the leader. To be eligible
to vote, an individual has to have been a paid-up member of the party for at least three months.

15. 15
 Of the four Northern Ireland parties represented in the British Parliament, only the DUP, which has 8
MPs, is in favour of the UK exiting the EU (see Figure 14). The other three parties – Sinn Fein, the
SDLP and UUP (with a combined 9 MPs) are in favour or the UK remaining in the EU. The Northern
Ireland electorate voted in favour of Remain by a majority of 56% to 44%.
What we don’t know
 Scotland and Northern Ireland may have a number of sources of leverage. For starters, the 54 SNP
and 9 Northern Irish pro-remain MPs could threaten to vote in favour of remaining in the EU if they are
not granted referendums on Scottish and Northern Ireland independence. Moreover, some legal
experts believe that while the Scottish and Northern Ireland Parliaments have no explicit veto, by
convention they would have to be formally consulted and effectively give their consent to measures
which take Scotland and Northern Ireland out of the EU3
.
 But should either Scotland or Northern Ireland be granted a referendum and vote in favour of
independence, this could conceivably raise questions about the legitimacy of last week’s EU
referendum.
 The Leave leadership is therefore likely to try and stall any talks of a Scottish or Northern Ireland
referendum on independence for as long as possible while trying to get support from Scottish and
Northern Irish Parliaments and House of Commons MPs.
Labour Party
What we know
 Labour Party members of the House of Commons, who are in their large majority in favour of the UK
remaining in the EU, have been very critical of Labour Party leader Jeremy Corbyn’s tepid support for
the Remain vote in the run-up to the referendum. Thirteen members of the shadow cabinet have so far
resigned, as have six shadow ministers and a number of ministerial aides. Two Labour members of
parliament have put forward a motion of no-confidence in Jeremy Corbyn and as I write a secret ballot
is being held. Corbyn has said he would not step down as Labour leader.
What we don’t know
 The final make-up of the Labour party leadership could change in coming weeks. The direct impact on
UK policy-making is likely to be negligible but if a new Labour leader with stronger pro-EU credentials
is elected, this could add weight to the risk of parliament voting not to trigger Article 50.
3 Sir David Edward, a former Judge of the Court of Justice of the European Communities, in a UK Parliament
Command Paper which lays out "The Process of withdrawing from the European Union" argues that “the Scottish
Parliament would have to give its consent to measures extinguishing the application of EU law in Scotland. Such
measures would entail the amendment of section 29 of the Scotland Act 1998, which binds the Scottish Parliament to
act in a manner compatible with EU law”. He adds that he “could envisage certain political advantages being drawn
from not giving consent”. This is admittedly an interpretation of the law.