Brexit talks stumble in Brussels, but optimism flows in City
The government has shifted the focus of its negotiations in Brussels as it struggles to secure a better position ahead of parliament's second meaningful vote on Brexit next week, though optimistic views were emerging in Westminster and the City of London.
Attorney general Geoffrey Cox has abandoned the plan to get the EU to agree a firm end date to the Irish backstop or unilateral exit mechanism, the Telegraph reported on Monday. These are two key demands of the Conservative party's Eurosceptic wing, the European Research Group.
Cox and Brexit Secretary Stephen Barclay, who will travel to Brussels to meet the EU's chief negotiator Michel Barnier on Tuesday, will redirect their focus to securing an enhanced “arbitration mechanism” that allows either side to call for a formal end to the backstop.
The government is aiming to negotiate a softening in the EU's position for Cox to be able to tell MPs that “on the balance of probability” the backstop is not indefinite.
Some members of the cabinet told the Telegraph they are not optimistic about winning the second meaningful vote as changes secured by Cox are not felt likely to win round hard-Brexit supporters in the party.
The ERG has secured an agreement from the government for a group of seven lawyer-MPs and one external legal expert will be able to examine the details of Cox's compromise before it is presented to parliament, the Guardian reported.
Analysts at the Eurasia Group suggested May might need to go further to persuade more Eurosceptics to back her deal, such as by promising to stand down this summer, but they felt is was more likely than not that May's deal will be successful in parliament next week.
"Some ministers privately think May only has a slim chance of winning through this month, but might have a stronger one in June if she can frame the choice as one between her deal and no deal (in a way she cannot now do this month). All the same, Labour MP Yvette Cooper’s bill blocking no deal would be revived. So May’s ability to play the no-deal card MPs might depend on whether EU would grant a second extension," Eurasia's Mujtaba Rahman wrote.
"If May fails to win Commons backing this month, a very different deal would likely return in June—such as Common Market 2.0 or Norway Plus agreement based on membership of the Single Market and a customs union. The real prospect of that might just tip enough Eurosceptics into May’s column this month."
Some in Westminster and the City were buoyed by Monday's news that Conservative party grandee Graham Brady is ready to drop his opposition to Theresa May's Brexit deal.
Spreadex analyst Connor Campbell said: "With the deadline for a 'meaningful' vote March 12, it appears that the hugely influential Graham Brady, chairman of the 1922 Committee, is now willing to back May’s deal - or, at least, more willing than he previously was - stating that 'the whole country is tired' of the dragged out process, and that 'when the right compromise is offered' the PM should get the party’s support.
"It’s not exactly promise or guarantee, but it is certainly more hope than May had this time last week, and the pound reacted accordingly."
With the chances of a no-deal Brexit seen as less likely by the day, something that had led to Morgan Stanley, JPMorgan, Citigroup and Barclays turning bullish on UK shares in recent weeks, domestically focused shares have been rallying and attracting renewed investor interest.
Exchange-traded funds tracking the FTSE 250 have seen $648m of inflows so far this year, analysis by Bloomberg showed, around 20% of their assets compared with the 3% for the more internationally flavoured FTSE 100.