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20 MAR

Brexit: With ten days to go, what is going to happen?

by City Am

In a process where the phrase dumpster fire is already probably more accurate than anything normally used to describe political process, speaker John Bercow threw a grenade into the mix by refusing to allow a third meaningful vote on Theresa Mays withdrawal agreement.

It was a move that surprised many – when we thought the rollercoaster should surely be coming to an end after three days of votes last week. He said:

“If the Government wishes to bring forward a new proposition that is neither the same nor substantially the same that disposed of by the House on 12 March, this would be entirely in order. What the Government cannot legitimately do is to resubmit to the House the same proposition or substantially the same proposition as that of last week."

It sounds reasonable when you put it like that. The government has already rejected the deal twice; a third vote with anticipation of a different result would surely be insanity. However, the news threw the Brexit process into a tailspin (presumably Theresa May was hoping to keep throwing the same deal at MPs in the hope theyd eventually acquiesce out of sheer frustration).

A quick catch up

In case you missed the round-the-clock headlines last week, there were three important votes on Brexit.

March 12th saw the second meaningful vote on TMs Brexit deal. It was mostly the same as the one she submitted in January, and it was rejected with a majority of 149 MPs.

This was followed the next day by a vote rejecting a no-deal in any circumstances and, a day later, by a vote supporting an extension to the negotiating period set out in Article 50.

However, its worth noting that a no-deal Brexit is still the legal default. If the EU doesnt agree to an extension, the UK will crash out of the Customs Union with nothing in place.

So, what happens now?

What happens next is uncertain. As German Chancellor Angela Merkel said: “I cant assess how things will be on Thursday, far too much is in flux.”

Now that MPs have backed a delay, May has to request that from the EU. She is likely to do so at the EU summit on March 21st.

There are two options here – the UK has a short extension in which Theresa Mays deal is squeezed through parliament (more on that later) and the extra time allows the UK time to get its house in order. May has herself said that the delay should be no longer than three months.

The second option is a longer extension which would allow for a new deal, more negotiations – any number of possibilities. This is less likely because no one on either side of the negotiation table wants this nightmare to drag on indefinitely.

However, its worth remembering that all 27 member states are entitled to a veto. The vote must be unanimous in order for the UK to be granted a stay of execution. This means EU members with alternative agendas could use the vote as a way to shine a light on their own personal grievances before they capitulate.

In terms of an outcome for Brexit – all options are still open. While the vote last week may have taken no deal off the table, from a legal standpoint, there is no table.

Possibilities include:

  • Further votes on Mays deal (in spite of Bercows ruling)

  • A major renegotiation (but the EU have ruled this out)

  • Another referendum (but May has ruled this out)

  • A general election (May doesnt have the power, but it could happen with the support of more than two-thirds of MPs)

  • Labour could table another no confidence vote

Another option is no Brexit. The European Court of Justice ruled that the UK could unilaterally revoke Article 50 and abandon Brexit without the need to consult all 27 member states. Would this mean no Brexit ever or another referendum – its unclear.

How would MPs get a third vote when Bercow has ruled it out?

There are three ways to navigate around Bercows ruling. The ruling says that the same motion cannot be voted on twice in the same session, which means the motion would have to change or the session would have to change. Changing the motion would require a change to the deal when the EU insists that negotiations have ended.

A new session would require ending the current parliamentary session and potentially having the Queen reopen parliament for it to be a new session.

Or, and most likely, MPs will decide to ignore Bercows ruling. If enough MPs agree that they want to have another vote on the deal, parliament can resubmit it.

What does it mean for the markets?

To say sterling has been a bit up and down as a result of all of the votes is an understatement.

The pound was volatile following Bercows comments, with MARKETS.COMs Chief Markets Analyst Neil Wilson saying:

“Sterling recovered its poise to trade above $1.3260, having earlier spiked lower after Bercow poured cold water on the governments plans

Although there was a sharp move lower initially, cable quickly pared those losses and you must say the sanguine reaction in currency markets reflects the fact that no one really knows where this leaves the Brexit story. This remains too tough to call either way.”

With so much still undecided and an increasing possibility of a no-deal Brexit, volatility is expected to continue for GBP in the coming weeks. Currency markets dont like uncertainty, and with just days to go there is still quite a lot of that.

Traders should watch Thursdays summit closely as its likely any statements, agreements or even passing comments to waiting media will cause ripples to the pound.

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