With both the Democratic Unionist Party (DUP) and Labour Party saying that they will oppose the deal tonight, it is likely that May could face a third rejection in the Brexit crisis, Short GBP/JPY?
Half of Brexit deal to be voted tonight
The vote tonight, on what was meant to be Brexit day, will only address part of the deal negotiated with the European Council. Theresa May knows that the Commons is not yet ready to accept her deal in its entirety. Therefore, UK MPs will vote on the withdrawal agreement on the Irish “backstop,” divorce bill and citizens’ rights.
The vote will not amount to a third “meaningful vote” as it will not include a vote on the UK’s future relationship with the EU. The UK cannot legally leave the EU without getting approval from MPs on both the withdrawal agreement and the political declaration.
EU approves Brexit extension
Last week the European Council agreed to postpone Brexit beyond the expected date of 29 March, offering an extension until 22 May if MPs approve the withdrawal agreement by today. If not, it offered a shorter delay until 12 April – the date by which the UK would have to indicate whether it would stand candidates in the 2019 European Parliament elections – allowing the UK time to get the deal through or to "indicate a way forward" and potentially request for a longer extension.
House of Commons takes control of Brexit but lacks a plan
On Wednesday, the UK Parliament took control of the Brexit process which allowed them to hold so-called “indicative votes,” which will give the Parliament a chance to decide on what type of Brexit could get the most support. It ended in failure with none of the eight options drawn up by various MPs securing a majority and another vote has been set on Monday on the more popular option. The top two options are:
- To provide for a much closer economic union with the EU after Brexit than what the Conservative party platform allows with the current deal
- To hold a second referendum
May’s desperate attempt
As a sign of desperation to gain votes, Theresa May vowed to resign if the withdrawal agreement tonight is passed. She told her party’s backbench 1922 Committee: “I have heard very clearly the mood of the parliamentary party. I know there is a desire for a new approach – and new leadership – in the second phase of the Brexit negotiations, and I won’t stand in the way of that.”
May’s move to resign seemed to have work as there are signs that many Eurosceptic MPs are ready to accept her deal not because her deal is perfect but because they realise that this deal is the clearest break from the EU that they can realistically hope for. Likely contenders for her position were won over as well with former foreign minister Boris Johnson saying that he would back her deal tonight.
Blindfold Brexit
However, the move was met with resistance from Labour Party’s Jeremy Corbyn who said that her pledge only created more uncertainties by leaving open the question of who would lead the trade talks that will define EU-UK relations for years to come.
Furthermore, DUP has made it clear that they will continue to oppose the deal tonight as they fear provisions in May's deal aimed at keeping a free-flowing border between Britain's Northern Ireland and EU member Ireland. This would give Northern Ireland a different economic status from Britain and separate it from rest of the country.
Brexit vote – what’s next?
If her deal is passed, May will resign after 22 May and will not lead the talks with Brussels over their future relationship but stay on as Prime Minister until a new leader is elected.
If her deal is rejected – which is widely expected – there are a few possibilities such as a second referendum, a general election, renegotiation with Brussels by May or even a further extension. This is explained by the flow chart below.
Source: BBC
All in all, we feel that May’s withdrawal agreement tonight, as well as indicative votes tomorrow, will be rejected as seen by the resistance shown from both the DUP and the Labour Party. Sterling might not fall as much as we expect as the market is already pricing in a rejection. Instead, Plan B by May will be the deciding factor on how sterling will move. Moreover, the geopolitical crisis and the slowdown in global growth could cause inflows into safe havens such as yen, resulting in GBP/JPY to have the largest move for sterling pairs.
Fullerton Markets Research Team
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