With Theresa May’s amended Brexit deal rejected in the Commons last night to the tune of 149 votes, the mode of Britain’s exit from the European union is still clouded in uncertainty, if indeed it happens at all.
UBS’ global economist, Paul Donovan, is pragmatic on the impact of Mrs May’s latest defeat.
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“The reality is nothing’s really changed and the media’s search for ever more hysterical headlines is just sensationalism.
“The government’s deal was never expected to pass – it did not pass. This doesn’t represent the collapse of civilisation. Most of the people who voted in the referendum remain profoundly disinterested in the whole process.”
The day’s events, particularly after initial optimism over apparent legal guarantees Mrs May had obtained on the Irish Backstop, culminated in a rocky day for the pound, with volatility set to continue as long as Brexit uncertainty reigns.
Rupert Thompson, head of research at Kingswood, says: “The defeat was not unexpected and more importantly the markets remain as bemused as everyone else as to where we are headed – a No Deal, a short or long extension to Brexit, a referendum, May’s resignation or a general election are all to vary degrees still all quite possible.
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By GlobalData“With all these options still on the table, sterling seems almost paralysed by the uncertainties.”
No deal unlikely but Brexit uncertainty will linger
With a No Deal likely to be rejected by Parliament today, the next step would be appealing to the EU for an extension of Article 50, simply prolonging the uncertainty, and volatility that comes with it.
“Delay alone does not solve the question at hand,” says Dean Turner, UK economist at UBS says. “To be sure, it should remove the immediate questions around a no-deal exit on 29 March, but it does not rule out the possibility that it happens at a future date. This will depend on how the political climate evolves.
“However, the greater concern for the economy and markets is the unending uncertainty of what comes next. All options remain on the table, but which one the government and Parliament choose to follow remains far from clear.
“How long any extension to Article 50 will be could have a bearing on how the situation unfolds. Our current belief is that an extension will be relatively short, but it could be the case that the only offer on the table is a lengthy delay. How the extension is used is clearly the key question.”
Both Kingswood and UBS favour a neutral weighing on the pound, hedging sterling’s downside risks.
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