The threshold for a leadership challenge may have been reached

The UK Conservative party has a novel system for removing the leader, who is Prime Minister Theresa May.

If 15% of members of Parliament for the party send letters to the chairman of the the so-called 1922 committee, then a leadership challenge begins. Graham Brady is currently the chairman and the current threshold is 48 letters.

Several reports indicate that has been reached and one report says Brady has asked to meet with May tomorrow. If it's reached, Conservative members of parliament will vote yea-or-nay on whether to replace May. If she wins, she remains leader, if she loses, she can't run in the leadership race that will follow.

The most recent challenge came in 2003 when Iain Duncan Smith lost a leadership challenge. In that instance, he was notified and the vote came the following day. That means Theresa May could lose a challenge as soon as Thursday.

How long a leadership challenge takes depends on how many MPs decide to run. Over successive periods the field is whittled down with the last-place candidate dropped from voting among MPs. Once the list is down to two names, the broader membership of the party would vote between them.

In 2003, Michael Howard was the only candidate to run and won unopposed. May won when the list was whittled down to her and Andrea Leadsom, who then dropped out with polls showing her well-behind May. However this time it's almost unthinkable that any leader could do the same with the party extremely divided.

In terms of market reaction, a leadership challenge would add an extra cloud uncertainty, at least on the headlines.

However it could be cleared up very quickly if May wins. If she still has the support of half her party, then a leadership challenge can't be mounted for 12 months. This would significantly strengthen her hand.

If she loses and the leadership challenge is whittled down to a Brexiteer and a soft-Brexit candidate or someone who could trigger another referendum; it could get ugly for the Conservatives and for the pound.

Cable is trading down 70 pips to a 17-month low of 1.2482.