Brexit vote: A 'no-deal' beckons

UK Prime Minister Theresa May’s Brexit deal was defeated by 230 votes in the House of Commons. The defeat was more severe than expected and leaves May with three days to come up with a plan B. The political situation is still uncertain. Potential scenarios include extending Article 50, crashing out of the European Union with no deal, or both. Labour Leader Jeremy Corbyn tabled a motion of no-confidence in the Government, expected to be debated in Parliament on Wednesday.

The UK Government was widely predicted to lose the vote, with some correctly expecting May to suffer the worst ever House of Commons defeat, surpassing Ramsay MacDonald’s 166-vote loss in 1924. Mrs May has indicated she will attempt to renegotiate with the EU. Discussions will need to be hurried -  she has only three working days to present a revised deal to the House and the scale of the defeat weakens her bargaining power.

The situation will become clearer after plan B is presented to parliament next week. If meaningful concessions are garnered from the EU, particularly on the Irish backstop, enough MPs might be persuaded to support the revised deal. But the scale of the defeat this evening makes this a distant possibility.

The clock is ticking on Article 50, which, if not extended, will see the UK leave the EU without a deal on March 29. There are still many possible scenarios following the vote including an extension to Article 50, a no-deal Brexit, a general election, or a second referendum.

Below are comments from Leigh Himsworth, equities portfolio manager:

“My own view (personal politics aside) is that the only reason Article 50 would be used is to go for a ‘No-deal’ outcome but allow greater preparation to take place. For instance, laws still need to be passed for a no-deal. Circa 1,000 statutory instruments are still needed in this scenario, for flights to pass over other territories, the insurance of vehicles, EU nationals to remain physically in place, the movement of livestock, etc. An extension of Article 50 with a ‘no-deal’ at the end of the maximum delay period - June 2nd - is, for me, now the most likely outcome.”

“Ultimately the debate is how we get to a full exit from the EU. This will either be a no-deal ‘crash-out’ or one that may happen over many years. Each has pros and cons. The ‘crash-out’ is potentially highly disruptive but gives certainty on what the UK faces and allows subsequent negotiation of trade deals, movement of people and so on. This could result in an immediate fall in sterling, but then a rebound as companies are forced to re-adjust quickly. The latter, an elongated exit, may result in a stronger sterling initially but prolong the uncertainty, resulting in falling investment and concerns about the ability of the corporate sector to make longer term plans.”
 FIL Limited.