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UK Parliament rejects Prime Minister’s Brexit deal, pushing up the Pound

Published: Wednesday 13 March 2019

By Halo Financial Team

In a dramatic day at Westminster, British MPs have rejected UK Prime Minister Theresa May’s Brexit proposals by a significant majority – and set up a crucial no deal vote tomorrow (Wednesday). As a result, the Pound, immediately rose from 1.305 to more than 1.310 against the US Dollar on the interbank rates, on hopes that a no deal will be averted and an extension agreed.

MPs defeated Mrs May’s Brexit deal on Tuesday evening by 391 votes to 242 – a majority of 149, despite her warning to support the "improved deal" or risk "no Brexit at all".

No deal Brexit vote crucial in deciding direction

Mrs May says the no deal vote is a matter of profound importance and will be a free vote for Conservative MPs. A no deal Brexit remains the government’s default, unless there is a deal, but Mrs May believes it could cause “potential damage” for Britain and so has urged the Commons to vote against it. However, if no deal is approved by MPs, it will become government policy.

What’s the alternative?

Should MPs turn down the no deal option, there will be a vote on Thursday on extending Article 50 and delaying the UK’s departure from the European Union, which is currently 29th March. Such an arrangement would also have to be agreed by all EU members.

Halo Financial’s Head of Corporate Dealing, Ricky Nelson, says on the situation, “It may seem strange that the Pound rises following such a big defeat for the Prime Minister, but the rise was not substantial, and the markets are hoping no deal will be subsequently voted down and that Brexit will be delayed. Any sign of certainty amid the continued uncertainty helps to strengthen Sterling, even if only a little.

“However, the situation is fluid, so if you are changing currency into or out of Sterling, it is best to obtain up-to-the-minute guidance and plan for your particular circumstances, as it can all change quickly.”
European Union and British Union Jack flag flying together.

The reaction of UK business

The reaction from UK business groups to the Prime Minister’s defeat was strong. They said jobs were in jeopardy and that MPs were constantly failing businesses.

Carolyn Fairbairn, CBI Director-General, says, “Enough is enough. This must be the last day of failed politics. A new approach is needed by all parties. Jobs and livelihoods depend on it.

“Extending Article 50 to close the door on a March no deal is now urgent. It should be as short as realistically possible and backed by a clear plan.

“Conservatives must consign their red lines to history, while Labour must come to the table with a genuine commitment to solutions. It’s time for Parliament to stop this circus.” 

Dr Adam Marshall, Director General of the British Chambers of Commerce, says, “Businesses have warned time and again that the United Kingdom is not ready to face the consequences of a messy and disorderly exit from the European Union. Government agencies are not ready, many businesses are not ready, and despite two and a half years passing since the referendum, there is no clear plan to support communities at the sharp end of such an abrupt change.

“Parliament must demonstrate that it will heed these repeated warnings. It is profoundly obvious that neither government nor many businesses are ready for a disorderly exit – and this must not be allowed to happen on March 29th, whether by default or by design.

“Businesses have been failed over and over again by Westminster in recent months but allowing a messy and disorderly exit on March 29th would take political negligence to new extremes.”

CEO of the British Retail Consortium (BRC), Helen Dickinson, also spoke out again about the effects of continued uncertainty on business and personal finance, saying that the UK’s politicians must put the people and industry of Britain before their personal feelings: “Even as the Brexit clock approaches midnight, MPs continue to squabble. Yet it is the public who will feel the impact of a no deal Brexit – tariffs, non-tariff barriers and currency depreciation will all push up costs and reduce the choice on the shelves we all currently enjoy.

“Businesses are exasperated over the lack of clarity over their future trading arrangements. Hundreds of ships are currently sailing towards Britain without a clear understanding of the tariffs, checks or documentation requirements they will face when they arrive. Politicians must swallow their pride and find an agreement that can command the support of the House.”

Eleventh Hour?

Things had looked good for Theresa May after she set up an 11th-hour meeting in Strasbourg on Monday night with European Commission President, Jean-Claude Juncker, and secured legally binding changes to the Brexit deal over the controversial Irish backstop.

Mrs May said the new agreement would allow the UK to refer to an independent arbitrator and exit the backstop if the EU sought to “trap” it. She also claimed the UK could unilaterally leave the backstop if talks on a future relationship broke down.

Mr Juncker warned that if the deal was rejected by UK MPs, then there would be no third chance.

The rollercoaster shows no signs of stopping

However, Attorney General, Geoffrey Cox, told Parliament ahead of the vote that the legal risk remained unchanged and the UK would have no way out of the Irish backstop without agreement from the European Union. Immediately afterwards, Sterling fell two cents against the US Dollar from 1.32 to a daily low of 130.1.

The team at Halo Financial will keep you up-to-date on the developments and further vital votes over the next few days, assessing what it means for the currency markets, finance and business growth.
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