On June 23rd, voters in the U.K. shocked global markets by voting to leave the EU. In this report, we will examine the various paths the country may take in the coming months with regard to this issue, discuss the political lessons learned and the impact Brexit will have on other European nations. As always, we will conclude with the potential impact on markets.

Brexit–Now What?
In the aftermath of the Brexit vote, PM Cameron announced he would be stepping down in September and the ruling Conservatives will select a new prime minister. Over the past week, the Tories, who are members of Parliament (MPs), voted on potential replacements for Cameron. The party started with five candidates and, through party voting and resignations, that group has narrowed to Home Secretary Theresa May. Energy Minister Andrea Leadsom pulled out of the race today. May is a member of the “remain” camp but has indicated that she will respect the will of the people expressed in the referendum vote. Leadsom supported the “leave” campaign. Thus, her exit from the campaign does have an impact on whether or not Brexit actually occurs. It is unclear at this point, even though May is the only remaining candidate, whether the party will hold a membership vote in September to formally select her as the new prime minister.
The June referendum expresses the will of the people but the actual process of leaving the EU only occurs with an act of Parliament.1 If Parliament fails to approve a formal decision to exit the EU, known as invoking Article 50 of the EU charter, Brexit won’t occur.
May has already indicated that she won’t begin the process of invoking Article 50 until 2017. At some point, the next PM will present a vote to Parliament. It is quite possible an Article 50 vote will fail and Brexit, despite the referendum, won’t occur. On the other hand, if the MPs vote to exit, the U.K. government will begin formal negotiations to leave the EU.
Assuming May does win the leadership vote within the Tories, which is almost a certainty given that she faces no opposition, we would not be shocked to see her call for snap elections, especially if she intends to reverse the Brexit referendum. Although the Conservatives only hold a narrow five-seat majority in Parliament, the Labour Party is in disarray and winning an election would give May a new mandate. In effect, the new elections would probably be another referendum on Brexit, especially if May argues that a vote for her is a vote to remain. The only alternative to those supporting exit would be to vote for the U.K. Independence Party, which has just seen the resignation of its longtime leader, Nigel Farage.
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