UK Politics: Disorderly Brexit now much less likely – Our main takeaway from the deal struck between the UK and the EU today is that a no-deal, disorderly Brexit has essentially come off the table. While PM Johnson will probably fail to get the deal through parliament (see below), we expect him to comply with the Benn Act in requesting a Brexit delay from the EU, with an election to follow before year-end, and the Conservatives subsequently campaigning on the basis of the deal (‘give me a majority and I’ll get Brexit done’). The most likely alternative scenario is that the opposition Labour Party amends the motion to put the deal to a new referendum, pitting it against the option of remaining in the EU. Either scenario is a benign one for markets, and it is difficult now to envisage a path to a no-deal Brexit.
Deal could win parliamentary support if it goes to a public vote – The deal is likely to get the seal of approval from the European Council, which is currently taking place and due to conclude tomorrow. However, it will have a much rougher ride in the UK parliament, when it is put to a vote in an historic special session on Saturday. Onside will be most Conservative MPs (288 of 650 MPs), alongside some of the 22 MPs who were expelled from the party in early September, and possibly a small number of Labour MPs. While the vote could be close, we doubt PM Johnson will muster the numbers to get the deal over the line. However, the situation could change if the motion is amended to allow for a referendum on the deal. Back in April, parliament came very close to voting in favour of a new referendum on Brexit, at 280 to 292 votes. Given the controversial nature of some aspects of this deal (namely that Northern Ireland will de facto be part of a different customs territory, and that environmental/worker protections could be diluted), we think parliament could well now have the numbers for a new referendum. Polling suggests Remain would win such a referendum.
What about the DUP? Could EU refuse a Brexit delay? What if there is another hung parliament? The DUP has come out against the deal, and this is one reason we expect it to fail to get through parliament. However, the ardently pro-Brexit ERG group has come out in favour of the deal, and PM Johnson is likely banking on getting a Conservative majority in a new election – which would nullify the need for DUP support in parliament. On a delay to Brexit, when asked by reporters Commission President Juncker said there is ‘no need’. However, EU leaders (who would approve or reject a delay) have not ruled it out, and we doubt they would refuse a delay if the alternative was a no-deal Brexit. Finally, another hung parliament in a subsequent election also poses risks. However, we think in this scenario parliament would ultimately come around to holding a second referendum to resolve the impasse before it allowed a no-deal Brexit to happen. (Bill Diviney)