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Before trading, please ensure that you fully understand the risks involved
Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors. Before trading, please ensure that you fully understand the risks involved

Tuesday, January 15, 2019

What happens after the BREXIT vote?

By Century Financial in Brainy Bull

What happens after the BREXIT vote?

Five week ago, UK Prime Minister Theresa May postponed the vote on the Brexit Withdrawal agreement due to a higher probability of losing it. The vote was delayed until today. This single vote will decide the next proceeding towards the future of Britons. While MPs vote today on May’s withdrawal agreement, let us analyze what happens next if the vote gets rejected.

image1 Brexit

May got defeated on 9th January in a Commons Brexit vote due to which the government would now have to present the Plan B for Brexit within three parliamentary working days if the deal gets rejected. Before the defeat, Mrs. May had at least 21 days to come up with an alternative plan.

The government had also lost to the vote earlier in December which gives MPs more say in proposing alternative plans of action.

In their ruling, The European Court of Justice has already given UK the power to vote unilaterally (without the consent of other EU members) and revoke article 50 (which cancels the Brexit). Now the odds of that happening are slim ahead of a second referendum or a No Deal Brexit.

In case, if MPs reject the deal, here are few options which are available-

  • Hard Exit

By default, a No Deal Brexit is in place after the withdrawal bill gets rejected. This can be only hindered if the MPs go against a No Deal Brexit. Through a vote in earlier December, they have already restricted the Treasury’s role to increase certain taxes so we will consider that there is a fair chance that MPs reject both the withdrawal agreement and the default option of No Deal Brexit. In that case, there will be a Vote of no confidence.

  • Nebulous Renegotiation– May had already tried going to Brussels for renegotiation the terms of the withdrawal agreement. Well! We all remember how nebulous it was. However, we do have to put it as an option in case the agreement is voted down. It would depend on EU’s desire whether the terms of the agreement would be tweaked or not.

In case, if the terms are renegotiated, then the UK has to put up a formal request among the EU members to extend the article 50 and put the amended terms on vote again.

But if EU is closed for any further renegotiation then the government has to look for other options.

  • MAY be a General Election– Can she call a general election like that? No, however, Theresa May can exploit the term of the Fixed Parliament Act and call for an early election. About two-third of MPs need to support this move and a request has to be sent to EU as well. If she does not get the two-third support then the Prime Minister can very well forget about the General Elections and see other options.
  • Vote of No Confidence- We know that both the Labor party and the Conservatives (Theresa May) can call for a vote of no confidence in the government. The likelihood of a status quo at such times seems less. So, in case if government loses the formal vote of confidence then an alternative government will be formed and May will have to resign.

In an another scenario where neither the existing government nor the alternative government are able to win the vote of confidence with 14 days, there will be a General Election in 25 days or later. The fact is that there can be a possibility of having a new government with a tweaked Brexit policy to be worked upon.

  • Doing it Again- One of the most impossible options at one time, having a “second referendum” is now a possibility. It would also require an extension of Article 50 and would take time for execution. It cannot be done before March either way. The rules for referendums are set out in a law called the Political Parties, Elections and Referendums Act 2000. A new legislation will be formed to determine the rules of the new referendum after which there will be a statutory “referendum period” of about 22 weeks before the vote happens.

Whatever happens, it looks like the UK political circus will continue to excite markets. At this point of time, it is important for the investors to manage their risk on UK and European equities as well as maintain a balanced exposure in cable, euro and dollar.