Well the Pod seem that Benny will be convinced by all his ministry and the king that Italy must stay out of the war because the Abyssian and Spanish Civil war had basically depleted national reserve and all the armed forces need a modernization cycle, we can say that he has a moment of inner clarity, swallow is pride and decide to accept the little bribe that the Uk and France proposed and stay neutral, limiting is involvment in sell weapons and materials to the Nazi and permit volunteers to partecipate in the war.
The Uk in this case will do nothing so stupid like a blockade because this will bring Italy in the war, the last thing that London want as she, for now, can barely hold Germany so they will grumble, protest but not much more, at least till the war go very bad for the German in this case Benny will try to distance himself from Adolf.
What will happen?
Italy will skip the half million of death and all the destruction of the war, lot less of debt and the program to bring people in Lybia will continue and when oil is discovered the jackpot will be hit; in the meantime money will be done selling material at Germany and the rest of axis (and probably to the allies too). Benny will try to attack Yugoslavia so to not look too weak and demonstrate to be a thoug guy, and in this case (with no other committement, more time for prepare and an already drafted plan for invasion) things can go rather smoothly; After the war Italy will be a too strong nation to be cast aside like Spain expecially in relation to the cold war.
UK: No East or North African Front, and later Greece campaign; so more resource can be diverted to the Pacific theatre, making the japanese less succesfull in their invasion (Singapore hold) and in general little less dependant of USA land-lease (not by much just a hinch less); on the downside more resource can make Churchill willing to try one of his 'audacious' scheme maybe a premature operation Torch.
Germany: No North-African front and later Italian front, so Rommel can go in Russia and the paratroopers too, no need to bailout Italy in Greece or Yugoslavia so Russia can be attacked when Adolf want. In the end probably a more succesfull eastern campaign (Moscow taken?) and a little more hard nuts to crack in the west (and with troops and tattics more green as not bloodied by North Africa and Italy) but in the end Germany will lose, with a war who last a little more and with the A-bomb launched in Europe instead of Japan