Tonight will see an unusual process take place in Parliament, with the use of ‘indicative votes’. It is a method last used in 2003 in a bid to reform the House of Lords, which derived no clear consensus, but hope is that it may yield a workable path this time around.
The outcome is not binding on the government, but the PM is looking for a majority to push through a workable plan. The default option of leaving the EU without an agreement in place remains, albeit a few weeks later than the original Brexit date of 29 March 2019.
What can we expect from the indicative votes tonight?
It’s not clear yet what options will be on the ballot paper, but we know that the vote will take place from 19:00 GMT with results likely to surface around 21:00 GMT.
Most likely options with subsequent pound predictions
This is a mechanism that allows EU members to operate as a single trade bloc, imposing common external tariffs and negotiating as one signal whole entity. Under Mrs May’s deal, the UK would leave this arrangement as they would in a no-deal scenario. Options on the ballot paper tonight are likely to include staying within this framework. Labour’s alternative five-point Brexit plan states continuous membership of the customs union, and similar options have been put forward by Labour’s Hilary Benn.
The pound is likely to react positively to this as this provides certainty to ongoing trade relations.
Re-opening the Withdrawal Agreement
Although completely ruled out by the European Union, there are proposed options to revisit the withdrawal agreement and pursuing a different route. Malthouse compromise plan proposed by Jacob Rees-Mogg and an amendment to propose a unilateral right of exit from the backstop (both very similar motions), if successful, will likely require a long extension to Article 50.
There’s no guarantee an extension will be given, with the pound likely to stagnate or fall due to the uncertainty remaining.
EFTA & EEA
European Free Trade Association (EFTA) is a collective of four member states (Iceland, Liechtenstein, Norway and Switzerland) promoting free trade whilst the European Economic Area provides a single market that enables free movement of labour, goods, services, and capital for all EU member states plus Iceland, Liechtenstein and Norway. Switzerland is not part of the EEA but holds a substantial amount of bilateral agreements that allows it to operate within the single market. Both these models do not cover fisheries and common agriculture, nor do they cover a customs union or common trade policy. It’s not clear whether the UK will seek to join and look to change the terms, a move in this direction is a seismic shift from the current path. Original members of EFTA would need to approve any new members.
With the close cooperation with the EU that comes from being part of this group, it’s likely to benefit the pound.
The Kyle and Wilson option puts the vote back to the public. Any deal agreed should be verified by the electorate, including the option of overturning the original 2016 vote.
The pound would favour this as based on the carnage that has ensued in recent times, the public may feel the only option is to go back on the original referendum. Not enough support from the big parties and any optimism should be carefully watched as the market has not been at its best when predicting votes.
Revoking Article 50
This option involves removing the default no-deal as currently enshrined in law with revoking Article 50. So, if MPs can’t agree then the UK will remain a full member.
This will be a positive for the pound, but the fallout from not delivering a referendum result will likely limit the long-term gains.
Parliamentary maths is likely to play a huge factor in the vote, with a no majority likely to cause further confusion. A third meaningful vote could take place in the next few days regardless of what occurs this evening.
The government is faced with the real prospect of accepting May’s deal, a soft Brexit or putting a vote back to the public.
The PMs resignation or/and a general election likely if the stalemate continues.
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