Duncan Donald

Fri, Oct 18

Brexit – As a deal passes with the European Union, can it get through Parliament?


Whilst it was always expected Brexit would go to the wire, the rate of progress we have seen since just last Monday the 7th Boris Johnson and Angela Merkel had a morning call, the result of which was that both stated there was no deal to be done.  Fast-forward just 10 days and as of midmorning Thursday 17th and the UK and EU announced that agreement has been met for the UK’s divorce from the EU. 


Having been dwelling in the expectancy that we were muddling towards a further Brexit extension the markets in the UK and EU were preparing for the worst-case scenario’s. At the tail end of last week, we started to hear the rumblings of a deal from the Prime Minister’s camp and when that was confirmed by the EU’s chief negotiator Barnier the markets lapped it up as the pound surged from 1.2200 to 1.2700 against the US Dollar on the thought a deal could be reached, but it wasn’t without doubt. 


After continued and lengthy cross channel negotiation yesterday morning we finally heard that a deal between the UK and EU had been reached.  It was announced via sources initially and the markets started to creep higher then, finally, Johnson and Barnier officially unveil that agreement had been reached and the pound surged towards a high of 1.2990. The announcement stated that this was a deal that the UK, EU and Ireland were all satisfied with. 


With the Irish border having been the biggest outlying problem in the negotiations the fact that the DUP and ERG had been satisfied was what brought comfort to the markets as they piled back into UK investments that had previously been deemed too risky. However, the euphoria was short-lived as within an hour sources started to report the DUP were still not happy with the deal, at which point the momentum started to shift and the morning’s progress reseeded. At around midday, the DUP officially confirmed in an email that due to dissatisfaction on chargeable VAT they would not back this deal when Boris puts it to parliament to vote it through. This brought the pound all the way back to where it started the day reversing the near 2.5% gains already seen. 


So Brexit sits precariously in the balance with the UK Parliament due to sit in session tomorrow the fate of the UK sits with them. Boris Johnson needs a majority of 320 votes to pass the deal and with him not holding a majority government and his coalition party stating clearly that they will not be voting with him that could be a stretch too far. Johnson will have to hope he gets full party support (287 Conservative MP’s) and that dissenting Labour votes (potentially 19 available) and former Conservative party rebels now defected from the party (potentially 20). There are also a handful of independent MP’s that could vote favourably on it and the very slim chance he could pick up SNP and Lib Dem voters.  BUT, it is going to be very very close. 



It is still uncertain how the vote will be structured. Last night leader of the House Jacob Reece Mogg stated that they could lawfully present the vote as accepting the deal v’s Brexit with no deal, now if that was to be the case it would effectively strongarm many MP’s into acceptance of the deal. However, this would be a hugely unpopular way of structuring the vote, as making MP’s chose what they would effectively see as the least bad option. With Junker yesterday ruling out a possible further extension the likely preferred vote of opposition MP’s has now disappeared or has it? We would expect opposition MP’s to be pushing today to see if this option can be brought back to life. There does also remain the slim possibility that “Revoke Brexit” could be given as a voting option, but with that lessening probability of success for Johnson he will naturally fight to avoid this. 


With the vote and result occurring on Saturday, one thing that remains a certainty is that market volatility when we open in Asia on Sunday. If the deal passes we could expect to see a lurch higher by at least a couple of cents against the US Dollar and of course convexly NO deal will be damaging to the pound and UK stock with the Euro and Euro stocks suffering a similar fate.