With May's Leadership in Doubt, Four Scenarios for Brexit

(Bloomberg) -- Theresa May's leadership is in doubt after a difficult party conference marred by open divisions over Brexit and a calamity-stricken speech by the premier. At stake is Britain's ability to strike a deal with the European Union with just 18 months until Brexit day.

Here are four possible scenarios of how it could play out.

1. May Clings On

Rebels fail to secure enough support to topple May, with lawmakers calculating that a leadership battle will inevitably lead to another election that they may lose to Labour -- which is ahead in the polls. May could try to stamp her authority on the Cabinet, possibly even by firing her rebellious foreign secretary, Boris Johnson.

But her authority has gone, both at home, and crucially in Brussels. Negotiators don't know who is calling the shots in London and if the offers May made in her Florence speech will remain on the table. EU leaders are unwilling to make concessions when they don't know if their opposite number will be in the job next month. Markets see this as the least bad option.

2. May Is Ousted, Triggering a Leadership Race

May resigns. While there could be a consensus candidate that would avoid the need for a leadership race, divisions in the party make that unlikely. The party conference in Manchester this week underlined just how split the party is.

So the Conservatives spend up to three months debating who should succeed May. The Tories' internal discord over Brexit is more apparent than ever as the battle is fought along Brexit lines.

Brexit talks are postponed for a second time to make way for domestic politics. Europe looks on, frustrated. The most likely winner of the leadership race is someone from the pro-Brexit camp, who will take a tougher line with EU negotiators on issues such as the financial settlement and single-market access. The concessions May offered in Florence are cast aside, and with them her proposal for a transition deal of about two years.

Britain will be left with less than a year to complete the exit talks and strike the outline of a trade deal before tumbling out of the bloc in March 2019 -- unless the EU agree to an extension. Businesses would bring forward contingency plans as a no-deal exit looks more likely. The pound slumps.

3. May Resigns and Davis Emerges as Consensus PM

Brexit Secretary David Davis could emerge as a consensus candidate, avoiding the need for a drawn-out leadership battle. While pro-Brexit, he gets some points from Remainers as a pragmatist, and would offer continuity. The Brexit department is absorbed into the prime minister's office and Brussels at least knows who is calling the shots. Markets like the fact it's over quickly, and a better outcome than months of uncertainty.

4. A General Election: Corbyn Wins

No election is due for another five years and nothing in the rules says a new leader requires a new electoral mandate. There's no evidence voters want one either. But in such a febrile environment, a general election can't be ruled out. Polls indicate that Labour would win. The party, which supports enforcing the referendum result, has a softer -- if vaguer -- approach to the split, wanting to keep access to the single market and possibly open-ended membership of the customs union. While there's a view in Brussels that it could be easier to negotiate with Labour, the increasingly leftward-leaning party also wants an end to free movement of people, limiting what it can achieve from the negotiations. Labour's key allies in the unions are pressing for continued membership of the single market. In any case, it's another few months of delays, as the clock ticks down to March 2019. The pound tanks on expectations that Corbyn will enact his anti-business agenda of nationalizations and tax hikes.

--With assistance from Ian Wishart Ven Ram and Paul Dobson

To contact the reporter on this story: Emma Ross-Thomas in Manchester at erossthomas@bloomberg.net.

To contact the editors responsible for this story: Heather Harris at hharris5@bloomberg.net, Alex Morales, Robert Hutton