What has happened?
The UK Parliament voted on potential options for moving forward in the Brexit process. After debating each option, the Speaker of the House, Mr. Bercow, chose 8 out of the 16 motions brought forward by Members of the Parliament. The results are not legally binding for the government at this stage, but merely indicate MP’s preferences to move forward. The options to be voted on were a) No-Deal Brexit, b) Norway (without the customs union, but membership in the European Economic Area and re-joining the European Free Trade Association), c) Norway Plus (adding a comprehensive customs arrangement to the relationship Norway has with the EU), d) permanent customs union, e) Labour Party’s alternative Brexit plan (May’s Withdrawal agreement but with close relationship to the EU), f) No-Deal Emergency Brake (in case of two days before a no-deal Brexit a confirmatory vote in Parliament would be required), g) second referendum, h) seeking a standstill agreement with the EU lasting up to 2 years – known as the ‘Malthouse Plan B’. In a series of votes, none of the motions got a majority.
In the run up to the votes Prime Minister May said she would leave earlier if her withdrawal agreement is approved by the Parliament. However, the DUP said before the votes it would not back the withdrawal agreement as it is now.
The GBP weakened and turned from an intraday high of GBPUSD 1.3269 into negative territory and traded at 1.3167 after the vote.
Today’s indicative votes on different Brexit options are unlikely to be a game changer. First of all, Parliament was unable to find a majority for any of the options. And secondly, even if a consensus would have been reached the implementation is another obstacle. In fact, Prime Minister May said earlier this week that the government would not necessarily be bound by Parliament’s wishes. Now the focus will be back on a potential third meaningful vote (MV3) on Theresa May’s withdrawal agreement, potentially taking place this Friday. Theresa May addressed the influential 1922 Committee of Conservative MP’s today and promised to step down if her withdrawal agreement is passed. While the backing of hard-line Conservative MPs seems to increase, the support from DUP is still not existent. Besides that, the government still needs to find a loophole to get around Mr. Bercow’s ruling not to hold another meaningful vote without substantial changes.
With just a few days left until the deadline (12th April), it is wise to consider what would happen if the MV3 was again rejected. One possibility is that the Parliament continues with indicative votes. The speaker of the house was clear that the indicative votes are a two day process and are going to continue in the next few days. If Parliament agreed a process to seriously contemplate the alternatives in the days after MV3 and in the first week of April, the likelihood of the UK submitting a request for a further delay beyond 12th April would be higher in our view than a “no deal”. That scenario would certainly keep UK domestic politics in a volatile state, most obviously within the Conservative party. While this would further increase uncertainty, it probably would not change the current parliamentary calculus around Brexit in a major way. Still, a majority of MP’s would want to retain close ties with the EU and would want to rule out a no deal Brexit.
We would expect the EU to be open for such a request if the UK is to undertake a new political process to debate and vote on alternative arrangements for the future relationship. If this process can be managed, the most likely eventual outcome is a softer form of Brexit, likely including ongoing UK membership of the customs union and possibly the single market.
Alternatively, Mrs. May could herself trigger revocation of Article 50, fearful of all the likely negative economic consequences of a hard Brexit. This outlier possibility, implying no Brexit at all, would have tremendous domestic political ramifications and the potential for political destabilisation means that it may also not be the preferred option for the EU27 members.
As the situation is ongoing, the Brexit saga is in essence unchanged, we make no change to our probabilities for the potential Brexit outcomes; hard Brexit (25%), forms of softer Brexit (60%) and no Brexit at all (15%). However, the uncertainty around these calls is high. The risks to our probabilities for a hard Brexit are tilted to the upside – in particular, if the UK politics does not get its act together in the time remaining even under the immense political and time pressure the actors are now facing
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