After a number of dramatic votes in parliament, we take a look at the way ahead for Brexit and the pound.
Reading the recent news headlines has felt like being Alice in Wonderland, with a rapidly changing landscape and sometimes confusing developments. Brexit appeared to be in sight, but it appeared as a door that the UK couldn’t fit through. However, a flood of historic votes in parliament carried the UK closer to the promised conclusion.
‘Eat Me’, ‘Drink Me’:
Sterling shrinks and grows as parliament votes on Brexit.
The successive votes on Brexit led to a volatile week for the pound, which rose and fell with each new development.
On the 12th March, the pound rose to fresh highs on the hopes that there would be an end to the Brexit uncertainty. Confidence waned throughout the day, particularly after the Attorney General weighed in on the legal impact of proposed changes to the Irish backstop. In the end, the bill was voted down by a majority of 149 and the pound started to make gains as the market anticipated the next vote. There was a majority of just 43 to rule out a ‘no deal’ Brexit, and the bill is not legally-binding, but it was enough to counter the losses to the pound ahead of the vote and sterling stabilised. There was a sense of cautious optimism in the market, which benefited the pound, but much relied on the final major vote of the week regarding an extension to the departure deadline. MPs voted by 413 to 202 to request the delay and this was good news for the pound as the market heaved a sigh of relief and held steady the following day.
Late for a Very Important Date:
How much of an extension was be requested?
While the market may feel like a crisis has been averted this week, there is still a lot of uncertainty ahead.
The Prime Minister planned to put her deal to parliament once more on 20th March however the Speaker has put a stop to her latest tea party, unless she can make significant changes. If the deal is agreed, an extension of three months will take place. This will mean the UK will leave the EU on 30th June. If the bill fails a second time, then the EU has decided our deadline for Brexit is the 14th of April. The problem is that the PM and MP’s remain poles apart, and there’s no guarantee that this fresh approach will meet with any more approval than the current one. Either way, the clock continues to tick towards the Brexit deadline.
Six Impossible Things Before Breakfast
What next for Brexit?
Which the EU has approved under condition that Theresa May can pass her new deal by the end of the week. If she succeeds and her new deal is pass by parliament, we will leave the EU with that deal on 22nd May.
If her deal is rejected, the extension is only until 14th April. At that point, the UK must “indicate a way forward” – asking for a long delay and taking part in the EU Parliament elections or fall out of the bloc with no deal.
The extra time may send negotiators back to the drawing board, considering something like the ‘Norway deal’ which will require greater involvement with the EU. While a second referendum was ruled out by parliament this week, it may still be on the cards if the deadline is extended and more direction on the will of the people is considered necessary.
Given that Article 50 can be revoked at any point, cancelling Brexit altogether is still a possibility with the longer extension. There may be considerable political wrangling to reach this point, but it could still happen.
The other possibilities that emerge from a longer extension all involve a change at the top. If a vote of no confidence is places before the government, or two thirds of MPs agree to call an election, then there could be significant changes to leadership that take the negotiations right back to the start.
Off with Their Heads!
Could Brexit cause another election?
Politicians and the public may consider a general election a distraction from the delivery of Brexit but there is a possibility that it can’t be avoided.
Within parliament, frustration with Theresa May has reached an all-time high following her speech on the 20th March where she blamed MPs for all the turbulence surrounding Brexit. The resignations of MPs from the Labour and Conservative party have created a new faction of independent MPs who also have the potential to change political landscape. A change at the top may dramatically alter the trajectory of Brexit, sending the UK back to square one.
Is There a Happy Ending in Store for Sterling?
Since the referendum result, the fate of the pound has been closely tied to that of Brexit. These latest developments do benefit the pound in the short term, as the concern over a ‘no deal’ Brexit is diminished.
However, over the longer term, the picture is less certain. Like Tweedledum and Tweedledee, the projections for sterling go back and forth without a clear conclusion. What is clear is that there is likely to be ongoing volatility while the situation remains uncertain. The market appears to favour avoiding the no deal scenario, so if that is taken off the table it could be positive for the pound. In the meantime, the pound is likely to be vulnerable to reports and rumours of developments, setbacks or changes to the Brexit situation. Major changes to the timeline, the deal or the process of Brexit may alter the picture quite dramatically. A general election or a referendum brings in an even greater number of variables and unknowns and this could also put pressure on sterling.
The Time Has Come, the Walrus Said, to Talk of Many Thing
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