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?
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?
As for Mrs May:
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.
At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.