BNY Mellon: A Week And A Half To Go

20 maart 2019

By Simon Derrick, Chief Currency Strategist

• The UK's solicitor-general has described the current situation as a “major constitutional crisis”
• There are reports the UK prime minister will seek an extension to Article 50
• It is unclear whether the EU27 would be prepared to accede to this request

Following the ruling on Monday by House of Commons Speaker John Bercow that he would not allow a further meaningful vote on the negotiated UK-EU withdrawal agreement unless it was substantively changed, the Solicitor-General Robert Buckland described the situation as a “major constitutional crisis”.

With a week and a half to go until the date on which the UK remains legally set to leave the EU (deal or no deal), this is the current state of play.

The ruling by the speaker

Given the ruling, it appears that the only way that the deal can now be passed by Parliament is if there are substantive changes made to it.

The Brexit Secretary, Stephen Barclay, made it clear yesterday that the government is not currently considering the prorogation of the current parliamentary session as a way around the speaker’s ruling.

What happens now?

The latest reports to emerge indicate that the UK PM will write to EU Council President Donald Tusk today to ask for a short Brexit extension only with June 30 being talked about as the end date. This comes ahead of her visit to the EU summit tomorrow and after reports that several members of the cabinet expressed anger yesterday at the prospect of a long delay.

There has also been a suggestion that were the delay schedule to be “agreed as a legally binding text then it would have the effect of amending her deal - such that the speaker could not then block her holding the meaningful vote for a third time.” 

Extending article 50?

German chancellor Angela Merkel's chief of staff told Bild on Monday that the issue of extending article 50 is not a given, and that he could not rule out that Italy or another member of the EU 27 could prevent it.

An official at the Elysee office of French President Emmanuel Macron said yesterday that the absence of a vote on the Brexit withdrawal agreement and the absence of any credible alternative would mean "one would mechanically move along the path of a 'no deal'". The official also noted that any demands for a delay would need clear and strong justifications.

What next for the UK?

If the UK government cannot find a way to work around the speaker’s ruling then it is possible that it would then follow the route suggested by the solicitor general. However, as he noted, “we are now talking about not just days but hours to the 29th of March”.

It is still unclear that the deal would pass even then.

Parliament could agree to a second referendum. However, at present it is unclear whether there is a majority for such a course of action. However, criticism emerged yesterday from the leaders of four pro-EU political parties for Labour leader Jeremy Corbyn’s insistence on seeking a softer Brexit deal rather than wholeheartedly support a second referendum. 

While it is possible for the UK to unilaterally revoke Article 50, some have argued that if the PM were to do so, she would need parliamentary approval, which does not seem likely to be forthcoming.

The government could agree to a series of indicative votes to ascertain whether there is a majority in favor of any one course of action. The PM would then need to go back to Brussels to discuss this option. However, a vote last week on an amendment that would have allowed MPs a series of indicative votes was defeated.

Could there be a confidence vote in the government?

On Sunday morning Jeremy Corbyn said he believed the government would be defeated again if the withdrawal deal were brought to a meaningful vote this week “and then I think a confidence motion would be appropriate”. He did not mention whether a confidence vote would be brought if the deal were not brought to a meaningful vote this week.

There are 313 active lawmakers on the Conservative benches. In addition there are 10 members of the Democratic Unionist Party which supports the government by a confidence and supply agreement, as well as the 11 members of the newly formed Independent Group of MPs.

Active Labour lawmakers combined with MPs from the Scottish National Party, Plaid Cymru, Green Party, Liberal Democrats and the remainder of the independent MPs, number 304. It would therefore likely take 15 rebel Conservative MPs to actually vote against the government to bring it down.

Calls have emerged from some Conservative MPs for a general election.

GBP

It is clear that Brexit rather than anything else continues to be the prime driver of GBP volatility. The key issues driving this volatility have been the question of an extension of Article 50, the likelihood of the negotiated withdrawal deal being passed, and the political instability of the government.

The next few days will likely see further significant uncertainty around all these issues. Given the circumstances, this also suggests that moves of a similar or greater magnitude to those already seen could emerge.