May's Future in Doubt After Brexit Election Gamble Backfires

(Bloomberg) -- Theresa May’s future as Britain’s prime minister was thrown into doubt after her gamble to call an early election backfired spectacularly, casting uncertainty over the government’s make-up as well as the direction and timing of negotiations on leaving the European Union.

May opted for a snap election to boost her parliamentary majority and strengthen her hand in the Brexit talks due to begin in just 10 days. Instead, her Conservative Party was on course to win 318 seats, down from the 330 she held at the start of the campaign and short of the 326 seats she needs for an overall majority. Jeremy Corbyn’s Labour Party will take 261 seats, a gain of 29 seats, according to BBC projections.

With the prospect of a so-called hung Parliament where no one party can rule alone, May signaled that she will try to form a government to ensure some certainty. Yet with calls for her resignation already coming from her Tory party, it’s far from clear whether she will be able to hold on and lead the U.K. into talks with the EU that will determine the country’s future prosperity.

“At this time, more than anything else, this country needs a period of stability,” May said in her electoral district of Maidenhead, west of London, her voice at times shaking. “If, as the indications have shown, the Conservative Party has won the most votes and the most seats, it will be incumbent on us to ensure that period of stability and that’s what we will do.”

The pound dropped the most since January as investors were confronted with another spasm of political turmoil less than a year after Britain voted to quit the EU, its biggest trading partner. 

May called the election seven weeks ago expecting to win a landslide, but instead managed to squander the commanding lead she enjoyed at the outset with a gaffe-prone campaign that focused in large part on her vision of a post-Brexit Britain outside the EU’s single market. That “extreme version of Brexit” was rejected by voters in Thursday’s election, according to Keir Starmer, the Labour Party’s Brexit spokesman.

Rubbish Bin

“I think hard Brexit went in the rubbish bin tonight,” said George Osborne, the former chancellor of the exchequer whom May sacked after he played a leading role in the campaign to remain in the EU.

The pound dropped as much as 2 percent and was trading at $1.2721 at 7:07 a.m. in London. Futures on the FTSE 100 Index were up 0.2 percent.

The election result is another reminder of just how disillusioned voters are with the political establishment in Europe and the U.S. following Brexit, the election of Donald Trump and the implosion of France’s main parties in the presidential election.

“Politics has changed and politics isn’t going back into the box where it was before -- because what’s happened is people have said they’ve had quite enough of austerity politics,” Corbyn said after retaining his seat in north London, and called on May to quit.

Must Go

“The prime minister called the election because she wanted a mandate, the mandate she’s got is lost Conservative seats, lost votes, lost support,” the Labour leader said. “That’s enough to go.”

The Scottish National Party is on course for 35 seats, down from 56 in 2015, and the Liberal Democrats may get 13, up from 8, the forecast showed. In Northern Ireland, the Democratic Unionist Party won 10 seats and the Irish Republican party Sinn Fein won 7 seats.

One of the biggest surprises of the night came when the constituency of Canterbury, which has been held by the Conservatives for more than a century, fell to Labour. Ben Gummer, who co-wrote the Conservative manifesto and was tipped to become Brexit secretary after the election, lost his seat in Ipswich, eastern England. Former Deputy Prime Minister Nick Clegg and Alex Salmond, the former SNP leader, were also defeated.

Whether or not May stays on, the Conservative Party’s best option may be to govern with the support of Northern Ireland’s pro-Brexit Democratic Unionist Party. 

“We need to wait and see what decision Theresa May takes on her own future and then we’ll reflect on it going forward,” DUP leader Arlene Foster told Sky News. “What we want to see is a workable plan to leave the European Union.”

Corbyn’s Appeal

One of the campaign’s revelations was the success of Corbyn, who had been dismissed as unelectable by some members of his own party at the start of the campaign. He rode out the criticism, holding open-air rallies at which thousands -- including many young people who had not voted before -- cheered his message of ending austerity and abolishing college tuition fees.

May, who promised “strong and stable” leadership, had a disastrous election. She reversed a policy on care for the elderly -- dubbed the “dementia tax” by Labour -- when it proved unpopular and refused to appear in TV debates with Corbyn. Opponents denounced her as “weak and wobbly.”

May also tried to exploit terror attacks on Manchester and London to expose Corbyn’s perceived weakness on security and his past associations with supporters of the Irish Republican Army.

“She needs to consider her position,” said Anna Soubry, an anti-Brexit Conservative lawmaker. “It’s a dreadful night. I’ve lost some remarkable friends.”

The election throws up major questions about Brexit. Talks with EU leaders are due to start in less than two weeks and those meetings may now need to be delayed, further eroding the time that Britain has to clinch a deal before it leaves the bloc in March 2019.

“Looks like we might need a time-out in the #Brexit negotiations,” Alexander Stubb, the former Finnish prime minister, said on Twitter. “Time for everyone to regroup.”

It will also be difficult for the next U.K. leader -- whether it’s May or someone else -- to argue that they are speaking for the entire nation after such a bitter and divisive campaign.

And even if the Conservatives retain power, the Brexit agenda could be set by lawmakers who campaigned for the cleanest break with the EU, limiting the room for May or her successor to make concessions.

“This is not an election campaign which has healed divisions across the country in the way it needed to,” Nicky Morgan, a Tory former education secretary, said in a text message. “The Conservative Party has some hard questions to ask itself.”

--With assistance from Charlotte Ryan Alex Morales Svenja O'Donnell and Robert Hutton

To contact the reporters on this story: Thomas Penny in London at tpenny@bloomberg.net, Tim Ross in London at tross54@bloomberg.net.

To contact the editors responsible for this story: John Fraher at jfraher@bloomberg.net, Alan Crawford, Flavia Krause-Jackson