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Month: January 2019

10 questions answered on the Brexit vote

After MPs voted against Theresa May’s proposed withdrawal agreement with a historic defeat, and the opposition lost the vote of no confidence in the government, it has been a busy few days to get your heads around. With Plan B to be presented on January 21st, we looked at 10 key questions surrounding the vote and the potential ramifications in the coming months.

  1. How important was this vote?

After postponing the vote from its original date before Christmas to garner more support, the ‘meaningful’ vote was always going to be in the spotlight. After an historic loss, Jeremy Corbyn immediately tabled a vote of no confidence in the Prime Minister, which highlights just how much was riding on it. In the end, the PM won the confidence vote thanks to the support of hard-line Brexiters and the DUP, but it’s clear that the situation is tense and her control of the situation remains tenuous as she reaches out to other parties.

  1. What happened before the vote?

May closed the five days of debates with a short speech this evening, with the vote kicking off with backbench amendments first. Three of the amendments were withdrawn and the last one soundly defeated, which put all the focus on the proposed Brexit deal. The advantage of this approach would have been clearer if the Bill had passed, as too many amendments may have caused difficulties with the EU. However, given the government’s defeat, these Bills do highlight the divisions across parliament about the best way to proceed.

  1. Who supported May’s deal?

A number of influential Tory MPs and key members of the Cabinet voted in favour of May’s proposed withdrawal agreement. The DUP, who in the past has adamantly opposed the controversial Northern Irish backstop, came out in favour of May. A small number of Labour MPs and one independent also voted for the Bill, but this was not enough to quash the rebellion within May’s own party and the Bill lost due to those MPs joining Labour and the Liberal Democrats in voting against the deal.

  1. How did Theresa May lose the Brexit vote and win the vote of confidence?

There are a number of factors at play. Rebel backbenchers from the Conservative party who opposed the Brexit deal in its current state demonstrated some loyalty to the PM – despite the fact that the party had its own confidence vote not too long ago. However, some of this may be down to clever politicking – had the PM lost, a general election would have been almost inevitable and that this would be very likely to put paid to the UK staying on track to leave the EU on 29th March. The DUP also voted in support of Theresa May – this honours the agreement between the two parties which allows the PM to maintain her majority, but it does also highlight the government’s reliance on the DUP. Aside from the practical concerns about the Irish border, this is one of the many reasons that the question of the Irish backstop has become such a hot-button issue.

  1. What is the Irish backstop?

The backstop is an insurance policy in UK-EU Brexit negotiations, according to Full Fact. Right now the Irish border remains open and the backstop effectively means it stays that way, regardless of future negotiations. As the only land border with the EU, Northern Ireland could remain aligned to EU single market rules, which might mean checks on goods entering NI. Different regulations for NI compared to the rest of the UK have been met with some criticism. Introducing potential check points could go against the 1998 Good Friday Agreement, a key component of the Northern Irish peace process. This cross-border cooperation is therefore significantly important.

  1. Could Brexit be delayed?

A number of Cabinet ministers revealed that a growing backlog of key bills could force Brexit to be delayed beyond March 29th, according to the Evening Standard. Six essential bills must be passed before the deadline and some ministers are apparently convinced the timetable is too tight currently. However, the prime minister’s spokesperson has ruled out extending Article 50 and has instead stated that the legislation will be passed in time for the Brexit deadline. After a dramatic day in parliament, Theresa May said in her speech that she would be reaching out to all parties to try to come to an agreement which keeps the current plan on track. Nonetheless, sterling spiked against major currencies in response of the potential delay, strengthening against the euro and the dollar by 1.1% versus the low of the day on 11th January.

  1. What happens now?

Our infographic includes a few scenarios that are being banded around. Theresa May has just three days to produce an alternative plan. If agreement cannot be reached, then a no-deal is on the cards. A complete renegotiation may require an extension of Article 50, effectively delaying Brexit.

Given that the PM won the vote of confidence, the prospect of a general election is off the table for now – but the spectre of that possibility is likely to remain present for some time and it could still happen if the next three days don’t yield any tangible positive results.

Finally a second referendum could take place. Such options can’t be rushed through and may still require an extension on potentially leaving in any case.

In summary, a lot could happen with a number of other consequences not even included in this list.

  1. What do European leaders think about the situation?

The EU’s Chief Negotiator Michel Barnier highlighted that the onus is on the British government to move their “red lines” and come up with a reasonable alternative if they wish the EU to consider it. The key concern of the EU, he stated, was that although the plan was rejected, there didn’t seem to be any consensus about an alternative option. When speaking to MEPs in Strasbourg, he said:

“Objectively speaking, this vote is not a clear manifestation of a positive majority which would define an alternative project, and an alternative to the proposal on the table today… So, in this context, it is up to the British authorities today or tomorrow to assess the outcome of this vote and up to the British government to find how we are to take things forward on 29 March towards an orderly withdrawal.”

German Chancellor Angela Merkel echoed this view that it was not up to the EU to make the first move, stating, “We believe it is up to the British side, as the prime minister has announced, to tell us what happens next.”

European Council President Donald Tusk was more straightforward in his approach, tweeting that perhaps the project should be abandoned: “If a deal is impossible, and no one wants no deal, then who will finally have the courage to say what the only positive solution is?”

Jean-Claude Junker demonstrated his impatience with the process, saying simply, “Time is almost up.” and Spain’s Prime Minister Pedro Sanchez, was just as succinct in his warning that an abrupt British exit from the EU would be “catastrophic”

President Macron of France was more scathing in his approach, highlighting how damaging a no-deal scenario would be and how he would continue to protect French interests. He gave a damning summation of the task ahead for the British government with the words, “Good luck to the representatives of the nation who has to implement a thing which doesn’t exist and has to explain to the people: you have voted on a thing, we lied to you.”

Across the board, EU leaders appear both frustrated and increasingly concerned, with leaders from Belgium, Denmark and Luxembourg, reacting to the result of the vote on social media by stating that they were actively preparing for a no-deal scenario

  1. Are we still leaving the EU on 29th March?

At this point, it’s hard to say what’s going to happen next. It’s clear that Theresa May has a difficult task ahead, and is currently reaching out to all parties to try to reach a consensus before her time runs out on 21st January. Labour leader Jeremy Corbyn has refused to join talks unless the threat of a no-deal exit was ruled out; while May dismissed this as self-interest, it’s clear that there is a lot of concern regarding no-deal scenarios across all parties and the PM may have to concede this to ensure she doesn’t lose any other supporters in the process. It’s clear that Theresa May still intends for the UK to leave the EU on 29th March, stating; “It will not be an easy task, but MPs know they have a duty to act in the national interest, reach a consensus and get this done.” Whether or not she achieves this remains to be seen.

  1. How does all this affect currency?

This has been the most important vote since the 2016 membership referendum, which saw the pound slump to a 31-year low. We traded a month’s worth of volume in a day on the original Brexit referendum result and as such Moneycorp is bracing for a similar reaction in the pound. After May pulled the initial vote date in December, sterling fell to a 20-month low against USD. Currencies tend to favour certainty, but right now there are a number of outcomes of which nobody is sure what they could lead to. A no-deal could cause volatility, as suggested by the PM herself, but if her deal passes, then the UK is in unchartered waters once more.

In times like these, it’s important to work with an FX provider that understands the ever-moving markets. If you have any international payments to make, speak to an expert at Moneycorp who can offer you guidance on +44 (0) 207 589 3000.

Alternatively, businesses can speak to our team on +44 (0) 7823 7800.

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