Will the U.K. Leave the E.U. Without a Deal?
Friday saw the British Prime Minister’s third attempt to get Brexit past the legal hurdle of approval by the British Parliament fail, but by a significantly narrower margin of defeat than was suffered in the previous two attempts. A lot of Conservative MPs came around to backing the vote, but it wasn’t enough, with the Government coming up 58 votes short. The Government had tried to be slick by separating the withdrawal agreement from the political declaration, but it still wasn’t enough. The British Pound responded by moving down, closing near the psychologically key 1.3000 level.
So, what happens next? The current legal position is that the U.K. will leave without a deal on 12th April unless either a deal is agreed and passed by the British Parliament before that date, Article 50 is revoked by the British Government before that date, or another extension is agreed between the E.U. and the British Government – but any meaningfully long extension would require the U.K. to participate in European Elections in May, which other E.U. countries such as France would find insufferable. The British Government wouldn’t like that outcome very much either.
Some analysts are pointing out that the British Parliament cannot stop a no deal exit if that is what the Government wants. This is true, however I still think the chance of a “no deal” exit is tiny, because I just cannot see the Government going through with it. I believe that the Government might threaten Parliament to pass the deal or a deal at the last minute, and this might be enough to get a deal passed which would see the U.K. leave on 22nd May with the small extension granted. Yet if, as is likely, Parliament refuses to pass it, the moment of truth for Prime Minister May will finally arrive: she will be faced with a choice between accepting a no deal Brexit and cancelling Brexit.
I predict that she will choose to revoke Article 50 and resign. This would see the Pound gain strongly. If somehow no deal happens despite my prediction, expect a very strong fall, possibly even to parity between the British Pound and the U.S. Dollar. It also won’t help the Euro, which is poised to fall to new low prices.