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Brexit: In Wait and See Mode

Wednesday, October 23, 2019

The British government managed to get a commanding majority (by recent standards at least) of 30 votes agreeing to the latest Brexit deal, however failed in its attempt to drive the Withdrawal Agreement Bill (WAB) through Parliament within the three day proposed timetable. The 31 October deadline is now officially “dead in a ditch” and amendments to the Bill will inevitably follow. We believe this poses serious issues for Prime Minister (PM) Boris Johnson not least for his promised battle cry of exiting the EU by the end of month. The EU is expected to agree to a limited extension, possibly to the end of January 2020, presumably the third and final time an exit date will be promised.

The options now, as suggested by sterling’s modest volatility after the results suggest that most market participants believe it is a case of when not if the deal eventually gets through Parliament. How it gets through is another matter – either through a reformed Tory majority after a snap general election, which would be the most bullish outcome for sterling, or a series of rolling voting battles on amendments to the current Brexit deal. PM Johnson seems to think that the general election route is the best option although he is stuck in that the opposition parties have been hoisted by their own Brexit intransigence petards and will not grant him a no-confidence vote or the two thirds majority needed for an election. The Labour party does not want an election given that the polls show them facing a commanding hammering, and like turkeys voting for Christmas, they will be staying inside their fixed-term parliament coop indefinitely.

The problem, we feel, is that PM Johnson does not trust Parliament to not continue its delaying tactics and Parliament does not trust him not to crash the UK out with a no deal at the end of next year’s transition period. It will all come down to who places greater trust in the polls – PM Johnson will hope that they are more accurate while everyone else from the Labour and Liberal parties to the EU possibly will hope otherwise.

No one still has a definitive clue on how this Brexit never-ending story concludes and the outlook remains as frustratingly muddled as it has always been since we entered this parallel universe on 23 June 2016.

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