The Confederation of British Industry, the influential lobby group for U.K. businesses, is to warn that a crash-out Brexit will shrink the country’s economy by 8% and put thousands of jobs at risk.
The CBI’s director general Carolyn Fairbairn will say in a speech on Friday that British politicians have a duty to “safeguard the security and prosperity of our country” and put jobs and the economy ahead of politics.
Her comments come as MPs prepare to vote on Jan. 15 on whether or not to accept U.K. Prime Minister’s exit agreement with Brussels.
Fairbairn’s comments echo those made by ratings agency S&P Global Ratings on Thursday. S&P said it could reassess its guidance on U.K. banks if the country is forced into a disorderly exit from the EU
It is widely expected that May will see her Brexit deal, secured last year, rejected by U.K. parliamentarians in next Tuesday’s vote. That would raise the likelihood of the U.K. leaving the EU without a deal in March.
The British foreign secretary Jeremy Hunt has sought to alleviate concerns about the threat of a no-deal Brexit, on Friday telling the BBC that he expected politicians to find a way to prevent such an outcome.
But sterling traders weren’t buying it. The pound dropped from $1.27596 at 07:30 GMT to trade at $1.27446 at around 8.30am U.K. time.
Elsewhere, the City of London Corporation, the governing body for the U.K.’s financial heartland, has said it would not support another referendum on the country’s membership of the EU
Q&A: The Brexit story so far…
Negotiators in the U.K. and European Union agreed the terms of their divorce and a rough outline for their future relationship in November, almost 2½ years after the U.K. public voted to leave the bloc.
But a deal is by no means done.
It will only come into effect if parliaments in both the EU and U.K. agree to sign it into their respective statute books. And while the majority of European lawmakers support the deal, their British counterparts are divided.
U.K. politicians had been scheduled to vote on the deal on December 11. British Prime Minister Theresa May postponed that vote at the last minute, however, as both pro and anti-EU politicians complained the deal still left the U.K. exposed to many European laws without giving it a say in their making.
May’s decision to delay the vote prompted frustrated Brexit supporters in her ruling Conservative Party to launch a leadership coup. When that failed, the embattled PM appealed to EU leaders for further concessions that would persuade more U.K. politicians to back her Brexit deal. As yet, none have been forthcoming.
So what’s next?
British politicians are now scheduled to vote on the deal on January 15. May needs a simple majority of 326 of the UK’s 650 parliamentarians for the exit terms she has secured to pass into national law.
But securing that will be no easy feat.
The Conservatives have a thin majority in the U.K. Parliament. Several senior government ministers resigned last year in opposition to her Brexit deal. The Democratic Unionist Party, a small Northern Ireland party that backs Brexit and props up May’s government, has also repeatedly threatened to reject the agreed divorce terms.
What happens if May loses the vote?
If May loses the vote on her EU deal by only a small majority — perhaps fewer than 50 votes — she will likely once again ask Brussels for last-ditch amendments to the deal, with a view to bringing those back to the U.K. Parliament and persuading enough politicians to back her in a second vote.
EU leaders insist that the deal agreed is the only one on offer and won’t be changed. But they might allow small tweaks in such a situation.
If May loses the January 15 vote by a large margin, members of her own party cannot attempt to oust her again. According to the Conservative party’s rules, its politicians cannot instigate a leadership coup for 12 months after any unsuccessful attempt.
But the opposition Labour Party has said it plans to trigger a vote of no confidence in the U.K. government if May’s deal is rejected — a move that could both topple the PM and trigger a general election.
Is a ‘no deal’ Brexit then the most likely outcome?
The majority of British parliamentarians don’t want the country to crash out of the EU without some agreed exit terms in place. In a bid to avoid such a scenario, the U.K. Parliament voted in December to take more control over the final stage of Brexit if May’s deal falls.
Politicians across all parties are pushing forward a series of amendments to key Brexit legislation that would leave the U.K. government unable to force the country into exiting without a deal. The first of these, backed by a majority of 303 parliamentarians on Jan. 8, will restrict the government from raising taxes in a crash-out Brexit.
Are there any alternatives to May’s deal?
If parliamentarians reject the agreed deal, several British politicians argue that the U.K. should push for indefinite membership of a satellite trading bloc to the EU known as the European Economic Area.
This is sometimes called the ‘Norway option,’ named after the EEA’s largest member.
This option would keep the U.K. in Europe’s single market, or single economic zone, without being a full member. That is an attractive prospect to U.S. businesses in London. It is also quite likely to win widespread support in parliament and in the EU.
What about a second referendum?
May is adamant that the U.K. public has already had its say on membership of the EU.
However, buoyed by continued opposition to May’s deal, pro-EU politicians in the U.K. are preparing now to get another referendum on the agenda.
EU officials have suggested they could allow a short extension to the U.K.’s two-year exit period, which is scheduled to end on March 29, 2019 — allowing time for a referendum.
But it remains unclear what question would be put to voters or even whether enough politicians will support the move.
With so much still unknown, U.K. investors are bracing for a bumpy ride through the first quarter of 2019. The biggest surprise for markets remains a vote in support of May’s exit deal on January 15.
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