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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What are the implications of Mrs May’s latest Brexit defeat?

The Government has lost the latest (second) vote on Theresa May’s Withdrawal Agreement. Voting for the deal 242 versus 391 voting against means a defeat of 149. This was an improvement on the 230 seat defeat in January (202 for versus 432 against) but still a pretty sizeable defeat for the Government (albeit a slightly better defeat than perhaps had been feared). What does this defeat for Mrs May’s Brexit deal mean for Brexit, the Prime Minister and sterling?

Brexit Mrs May

So, what has happened to bring us here? There were no changes to the Withdrawal Agreement in the end, but what Mrs May brought back with her from her last minute trip to Strasbourg was a “Joint Interpretive Instrument” which was an agreement between the EU and UK that the backstop would only be temporary. However, today, despite the Prime Minister believing the necessary changes had been made to her deal, her Attorney General, Geoffrey Cox, admitted that the legal interpretation of the Irish Backstop achieved “remains unchanged”. The only notable change was that if the subsequent talks with the EU broke down due to “bad faith” then the UK’s position to leave of its own volition would be strengthened. The key points of Cox’s interpretation are below. There is a “reduced risk” of the UK being trapped in the backstop, but this is not good enough for some MPs to accept the deal.

But Cox’s final point of the interpretation has been the key sticking point that many of the harder Brexiteers on the Conservative benches, whilst Mrs May’s confidence and supply partners, the Democratic Unionist Party have also voted against her.

Subsequently, it was seen that not enough was achieved in Strasbourg the deal has been roundly voted down, again.

So what next?

  • Parliament will now vote tomorrow on whether to reject a “no deal” Brexit. The government is not advocating rejecting no deal, but perhaps crucially, it is a free vote on the Government benches. It is widely accepted that a “no deal” Brexit will be voted down. If this is so, then sterling would find support and likely rally
  • This would then takes us to the final key vote of the week (on Thursday) which is whether to extend Article 50. This would be THE crucial vote as if it passes then it opens a whole new avenue of options: How long an extension? Would the EU agree? A move for a second referendum, or a general election. This would be another sterling supportive event.
  • However, also will there be a Meaningful Vote version 3? If no deal is rejected AND the vote to extend Article 50 fails then this would have to be seen. This would then be absolute last chance saloon and this would then surely be a far closer vote as the UK would be in cliff edge territory again.

 

As for Mrs May:

  • Would she survive another heavy defeat? She is safe in her party from another leadership challenge until December, but would her Cabinet turn against her and mass resignations would certainly mean she would have to step down.
  • There would almost certainly be another confidence motion brought against her by Labour in an attempt to force a General Election.

 

The implications for sterling:

Ultimately this opens the door for all options still on the table. However, more interestingly is that this would not be the crucial vote (as it was well known that she would lose). The next two votes are key (on no deal and extending Article 50). Both of these votes are likely to be sterling positive. Volatility aside (depending upon how deep you pockets are in a downside spike), sterling is still more likely to be trading in the $1.30s by the end of the week. Weakness is likely to be seen as a chance to buy.

Cable on Brexit vote

Richard Perry

Richard Perry

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