Brexit Special: May mandated to renegotiate
The impact on the Pound after yesterday evening’s parliamentary votes can best be summarised by the fact Goldman Sachs analysts have kept the probability of a delayed Brexit unchanged at 50% and cut probability of “no Brexit” to 35% from 40% i.e. a softer Brexit remains as likely as it did but the chances of Brexit being ‘cancelled’ are reduced. The Pound ended up down 0.7% to 1.3057 on the Dollar and 0.8% to 1.1420 on the Euro.
Growing expectations that Britain might avoid a no-deal Brexit had fuelled a Pound rally against its peers, but some gains were surrendered as MPs prepared to vote. A volatility spike in the derivatives market reflected nervousness about the likely outcome. Markets were focused on Amendment B, proposed by Ms Cooper, which sought to shift control from the government to Parliament and postpone to the Brexit process. If successful, it could have given lawmakers who want to block or renegotiate Brexit a legal route to do so. On news of its defeat by 321 votes to 298, Sterling dropped sharply.
Dominic Grieve, a pro-EU Conservative MP, whose amendment aimed to give lawmakers a chance to propose their own Brexit debates in Parliament, failed to muster enough support and lost by 20 votes. Labour MP Rachel Reeves’ amendment, which would have required the government to extend Article 50 without a deal before 26 February, failed to pass. Conservative MP Caroline Spelman and Labour MP Jack Dromey did a non-binding call on the government to rule out leaving without a deal through.
The final passed amendment, Conservative Graham Brady’s proposal to replace the so-called Northern Irish backstop with alternative arrangements, passed. Much debate will be centred on the meaning of “alternative arrangements”.
Theresa May is banking on the amendments strengthening her hand when she returns to Brussels to try to re-open and renegotiate the Brexit deal. Ultimately, there’s a lack of anything other than words preventing a hard Brexit, the March 29 deadline remains a cliff-edge event, and those betting on a Pound recovery were disappointed.