U.K. Prime Minister Theresa May’s Brexit deal was soundly rejected in Parliament on Tuesday, leaving the country in a state of uncertainty about not only the future of its planned exit from the European Union, but possibly also about who will lead the British government.
Here’s what could happen following a vote that showed 432 members of Parliament against May’s deal, and 202 in favor, marking a historically poor performance for a sitting government in recent British history.
The government now has three days to return to Parliament with an alternative deal.
One way or another, the U.K. is still set to leave the European Union on March 29 — with or without a negotiated deal. Chatter of a possible extension of this deadline has been making the rounds over the past weeks, with some local reports claiming the EU would be ready for some such extension.
Jean-Claude Juncker, president of the European Commission, urged London to clarify its course of action on Twitter.
— Jean-Claude Juncker (@JunckerEU) January 15, 2019
Meanwhile, Labor Party leader Jeremy Corbyn said in Parliament following Tuesday’s result that he would bring a vote of no-confidence in the government, which will be debated on Wednesday.
This differs from a vote of no-confidence May faced in December, which was brought forward by her own party. May won then, ensuring that the Conservative Party can’t challenge her for another year.
However, that past victory may be little consolation now because if May’s government loses Wednesday’s vote of no-confidence, fresh elections would likely ensue.
As such, all options — a soft Brexit with a deal, a hard Brexit with no deal, a general election or a second referendum — are in principle still on the table.
The markets reaction
U.K. assets responded perhaps surprisingly positively to the news of May’s defeat. The British pound
which had been sharply weaker versus the U.S. dollar for much of Tuesday’s session, pared its losses and turned positive. One pound last bought $1.2881, compared with $1.2866 late Monday.
“Comments from PM May that she is not seeking to run the clocks down and looking to leave the EU in an ‘orderly fashion’ could be behind this,” wrote David Cheetham, chief market analyst at trading platform XTB, in a note. “Traders are seemingly taking the outcome as paving the way for an extension of the Article 50 deadline, rather than increasing the chances of a no-deal Brexit and this has caused the recovery seen in the pound.”
So far, the Northern Irish Democratic Unionist Party, as well as the Conservative pro-Brexit European Research Group, are expected to support May in Wednesday’s vote, according to local reports.
Whilst Labour launch a no confidence vote, DUP backing govt reduces risk of an election any time soon. Likely next step is May comes back to Parliament with new #Brexit deal and/or Article 50 extension. Not a reason to buy GBP… nor sell really. Cable to settle around 1.27-1.28 pic.twitter.com/oVhsRgnbtQ
— Viraj Patel (@VPatelFX) January 15, 2019
dropped against the pound on the back of the vote, sliding to £0.8859, down 0.7%.
Meanwhile, the popular iShares MSCI United Kingdom ETF
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