Path to Brexit littered with uncertainty

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British Prime Minister David Cameron sought to reassure Britons the country is well positioned to meet the challenges of leaving the European Union, even as financial markets sank and political tension soared in the absence of clear direction on when and how Brexit will happen.

"We know this is going to be far from plain sailing," Mr. Cameron told the House of Commons on Monday, two days after announcing his impending resignation. But he said Britain is "ready to confront what the future holds from a position of strength."

Yet there was growing evidence the uncertainty over the country's future could drag on for a long time. Mr. Cameron said Britain would not begin negotiations with the EU on withdrawal until a new prime minister was in place.

"Before we trigger Article 50, we need to determine the kind of relationship we want with the EU. That is something for the next prime minister and his or her cabinet to decide," Mr. Cameron said, referring to the law provisioning an EU member country's exit from the union.

He also ruled out calling another referendum. "We have to accept the result, we have to get on and deliver it."

The Conservatives announced the start of a leadership campaign to replace Mr. Cameron, kicking off a process that has already caused deep divisions between those in the party who supported Vote Leave and those who backed Remain. The Tories will pick a new leader on Sept. 2.

On Monday, the front-runner, Boris Johnson, who led the Vote Leave campaign, appeared to back away from some of the commitments made in the campaign. In a newspaper article, Mr. Johnson indicated that he was in no hurry to leave the EU and that Britain "is part of Europe, and always will be."

Chancellor of the Exchequer George Osborne, who was once widely regarded as a front-runner to succeed Mr. Cameron, ruled himself out of the leadership race. Mr. Osborne, a close ally of Mr. Cameron's, said his fierce advocacy for Britain to stay part of the EU meant he was no longer a suitable candidate.

Meanwhile, more than 20 senior Labour Party MPs deserted Opposition Leader Jeremy Corbyn, resigning their shadow-cabinet posts and calling on him to quit. Opponents accuse Mr. Corbyn of making little effort to persuade Labour supporters to back remaining in the EU, and they fear he cannot win a national election that could be called as early as the fall. Mr. Corbyn fought back, labelling the dissidents' actions "internal factional manoeuvring" and vowing not to step down.

While the political machinations played out, the hard realities of the vote to leave the EU set in. Financial markets fell for the second straight trading day, with London's FTSE 100 index dropping more than 2 per cent and the pound sinking to a 31-year low against the U.S. dollar.

Several banks were hit harder. Shares of Royal Bank of Scotland fell as much as 25 per cent and Barclays lost 15 per cent. Investors also fled to safe havens, including government bonds, and the yield on 10-year British bonds, or gilts, fell below 1 per cent for the first time in nearly 300 years.

"Gilts just kept dropping. It's no wonder. There's no political leadership in the U.K. right when markets need the reassurance of direction," said Luke Hickmore, a senior investment manager at Aberdeen Asset Management.

Many businesses were also beginning to feel the impact. Realtor Foxtons and airline easyJet said Brexit would hurt their bottom line this year and a survey by the Institute of Directors (IoD), which represents 34,500 companies, found that 64 per cent of its members said Brexit would have a negative effect on their operations.

"A lot of what we're seeing is anxiety in terms of what the future is going to look like, and there hasn't really been a coherent articulation of that," said Michael Martins, an economist at the IoD.

It isn't clear when Britain will begin negotiations to leave the EU. Under the Lisbon Treaty, only Britain can trigger Article 50. And once that happens, it starts a two-year process of negotiations on a new relationship between Britain and the EU. Those negotiations can be extended only with unanimous consent among Britain and EU members.

Leading up to last week's referendum, many campaigners suggested that Article 50 would be triggered immediately after a Leave vote. Several EU officials have also called on Britain to move quickly. But both Mr. Cameron and Mr. Johnson have indicated that it could be many months before negotiations begin.

Experts are divided over when and how Article 50 should be triggered. Some have said only Parliament can trigger the section, not simply the prime minister. That would be difficult as the majority of MPs support Britain remaining in the EU.

Then there's the question of an early election. There has been speculation that once a new Tory leader is in place, he or she would call an election in the fall. If Labour won, or formed a coalition with other parties, experts have wondered if that government would feel bound by the referendum or could simply never invoke Article 50.

Kenneth Armstrong, a professor of European Law at the University of Cambridge, doubted that would happen. If a Labour or a coalition government was formed, "They couldn't say, 'Okay, we're not going to trigger Article 50,'" he said. "I think we would probably then have to run a second referendum."

Prof. Armstrong said he believes that it is likely negotiations will begin later this year and could go on for years.

"We might end up having multiple negotiations in play," he said. "We will have negotiations on a withdrawal agreement, we will have negotiations on a future trade and co-operation agreement and then we might have Scotland saying, 'We don't care what the U.K. is doing, we want to join [the EU].'"

With a report from Reuters