Pound wavers after govt loses vote on withdrawal agreement

MPs voted down Theresa May’s withdrawal agreement by 344 votes to 286 on Friday, raising the possibility of a long delay to Brexit and perhaps a general election.

Giving up earlier gains, the pound fell 0.3% against the euro and dollar, breaking below the $1.30 mark for the first time since 11 March.

Britain will crash out of the European Union on 12 April unless an alternative deal or a long extension is agreed, after the European Council last week approved an extension to the Brexit deadline from unless May could gain approval for her deal by Friday.

Having lost the vote, the government now has until that date to work out the next steps for the Brexit process, which is likely to include a long Brexit delay or else crash out of the EU with no-deal.

But in a speech to the House of Commons after the vote, May said 14 days was "not enough time to agree, legislate for and ratify a deal, and yet the House has been clear it will not permit leaving without a deal".

Immediately after the result emerged, European council president Donald Tusk called an emergency Brexit summit for 10 April, with an official saying they "expect the UK to indicate a way forward before then".

A spokesperson for the European Commission put it in harsher terms, saying no-deal on 12 April "is now a likely scenario" adding that it "will be for the UK to indicate the way forward before that date for consideration by the European council."

NEXT STEPS: RUN-OFF, ELECTIONS OR NO-DEAL?

After wresting control of the Commons on Wednesday to begin the process of holding ‘indicative votes’ on new paths forward, MPs will hold the second round of debate and votes in this process next Monday.

In her post-vote speech, May said, "I fear we are reaching the limits of this process in this House" but added, "This government will continue to press the case for the orderly Brexit that the result of the referendum demands."

Reports from lobby journalists suggested May wants to watch the outcome of Monday's process before trying to put her Brexit deal to MPs for a third full 'meaningful vote', known as MV3. If she lost she would have no choice but to request a long extension or potentially call a general election.

Downing Street sources, as well as describing the 58-vote defeat as "going in the right direction", were said to be aiming for a "run-off" vote between MV3 and the leading options of Letwin's indicative votes.

Govt sources suggesting we could next week get some kind of run-off between the Letwin winner (customs union/PV) versus May's deal (3rd time). No one sure how that would work. May be govt wait instead for Letwin to run its course then do MV3.

— Paul Waugh (@paulwaugh) March 29, 2019

MPs who had put forward alternative plans were working together to tweak their proposals to maximise potential support, the Financial Times reported, noting that a total of 311 MPs voted for the customs union, membership of the EU single market, or both - which is just short of a Commons majority.

Wednesday's most popular indicative vote was for a second Brexit referendum, for which the SNP, the LibDems and The Independent Group, now renamed Change UK, all voted rather than any other options apart from revoking Brexit.

BUSINESS AND MARKET REACTIONS

Economist Kallum Pickering at Berenberg noted that the default outcome is a hard Brexit on 12 April unless the UK and EU can agree to a lengthy extension and a path forward but felt there was a "low chance" of this, even though the onus is on the UK side to find a Brexit solution.

While Pickering said the UK is "potentially heading for a lengthy delay that could end with a snap election and/or second referendum" he felt there was a higher chance that the will go to Brussels to ask for more time to sort out its affairs.

"As all 27 EU members would need to agree to such a delay there is a small risk than one or two member states reject the UK’s request. While this seems unlikely, it is not impossible."

More likely in his view, the EU would accept a request for a longer delay and, "through the continued process of cross-party negotiation, eventually parliament backs a soft option down the line that the government adopts as its plan for negotiating the future relationship".

UK business groups were, quite understandably, not impressed by the ongoing Westminster deadlock.

Josh Hardie, deputy girector-general of the CBI, said: “All eyes are now on Monday to discover what Parliament is for. The UK’s reputation, people’s jobs and livelihoods are at stake. No deal is two weeks away. This winner takes all approach means everyone loses. Indicative votes must deliver. Only MPs can end this nightmare for businesses.”

Edwin Morgan, interim director general of the Institute of Directors, said: “The Brexit merry-go-round continues to spin, but the fun stopped a long time ago. We are running out of words to express how sick business leaders are of being stuck in this spirit-sapping limbo. The inability to make any decision is doing lasting damage to enterprise.

“The Commons must come together around a realistic option on Monday. Meanwhile, as the ones who are actually negotiating with the EU, the Government must be ready to make clear its own preferred route forward. It can’t entirely absent itself from this process, even if Parliament is crucial for the next steps.”

Laith Khalaf, senior equity analyst at Hargreaves Lansdown, said the movements in financial markets were going back over familiar ground. "Further chaos and uncertainty has weighed on the pound, and the share prices of those companies which are highly sensitive to the UK economy, notably the UK banks and housebuilders."

"While these trends may be well worn, reaction was relatively muted, because a high degree of political turmoil is already priced into markets. Until we get some direction on Brexit, the market’s likely to stay in its current holding pattern."

He recommended investors keep a long-term perspective in mind, especially as the political upheaval comes at a particularly unhelpful time for private investors looking to take out an ISA before the tax year deadline.