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UK Parliament Votes to Delay Brexit

Karl Schamotta March 14, 2019

In the latest development in an extraordinarily long and complex process, British lawmakers have voted 412-202 to delay divorce proceedings with the European Union. As had been widely anticipated, the Parliament of the United Kingdom overwhelming approved a motion allowing the government to request an extension of the withdrawal period set out in Article 50 – the mechanism that enables a member state to exit the political and economic bloc.

Five amendments to the motion had been selected for debate by Speaker of the House John Bercow – including a modification calling for a second referendum, and another amendment of an amendment – but one was taken off the table, and all others were voted down.

Under the terms of the successful motion, a formal request will be submitted to the E.U. by March 20th – if Parliament does not approve a withdrawal deal first.

If a deal is approved before the 20th, the government will ask for an extension to the 30th of June to pass supporting legislation. To wit, the Prime Minister may yet table a third “meaningful vote” on her deal, using the prospect of a second referendum to focus minds on the right wing of her political coalition – and the fact that today’s amendment votes largely went her way would suggest that the odds on this gambit succeeding are non-negligible.

E.U. member states must then decide whether to grant the extension. Approval is considered highly likely, but this may come with caveats. In an interview with Sky News this morning, finance minister Philip Hammond warned that deciding the length of the extension would ultimately happen on the other side of the Channel, saying, “If we don’t have a deal, and if we’re still discussing among ourselves what is the right way to go forward, then it’s quite possible that the E.U. may insist on a significantly longer period”. Sources close to European Council President Donald Tusk told CNN this morning that he supports an extension lasting at least a year.

If the government is unable to garner enough support to conclude a deal after March 29th, Parliament will seek to form a consensus on the next steps, albeit through an as-yet-undetermined process. Additional delays, a softer Brexit, a general election, or a second referendum all loom as possibilities during this time period.

It should be noted, however, that a second referendum remains a difficult proposition. A bill would need to navigate the committee process and be passed by lawmakers before gaining approval from the European Union – and any ballot question would need to pass muster with the Electoral Commission.

The pound is rising from levels reached earlier today – and with the prospect of a hard Brexit effectively off the table, remains roughly two percent higher on the week.

Bottom Line: The fog of uncertainty which fell on the United Kingdom in June 2016 has largely failed to lift this week, but the odds on a disorderly exit which could impact world markets have fallen sharply. A series of clarifying votes may open the door to a deal that minimizes economic disruption and respects the wishes of the winners in the 2016 referendum, but if the last three years have taught us anything, it is that British politicians rarely miss an opportunity to miss an opportunity. This tempest in a globally-meaningful teapot will continue to dominate headlines for months, and perhaps years to come.

Karl Schamotta
Chief Market Strategist
kschamotta@cambridgefx.com
@vsualst

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