Yahoo Finance Sterling falls after May's deal is rejected and Britain inches closer to a no-deal
Sterling fell again this evening after UK prime minister Theresa May’s ‘new’ Brexit deal was rejected.
The pound against the US dollar (GBPUSD=X) fell to under $1.31 following May’s failure to win over MPs with a series of last-minute changes agreed with the European Union. Members of Parliament (MPs) voted against the deal by 391 votes to 242 — a majority of 149 votes — in yet another humiliating defeat for the prime minister over Brexit.
Late last night, May and her Brexit secretary Stephen Barclay secured a new agreement with EU chief Jean-Claude Juncker, which included ensuring that there will be “no indefinite backstop” — the key sticking point for many hard-line Brexiteers.
She said the new agreement — or “instrument” — could be used to start a formal dispute against the EU if it tries to keep the UK tied to the backstop. The “Irish backstop” is an insurance policy that will ensure there is no hard border in Ireland.
However, this wasn’t enough to push through the deal.
“While the margin of the defeat at 149 is far smaller than the 230 votes seen back in January, it is still large enough to leave any hopes of it gaining the requisite support before March 29th hanging in tatters. This now sets into motion a sequence of events that will likely see the the UK return to Brussels and seek an extension to Article 50 beyond the 29th March deadline,” said David Cheetham, chief market analyst at XTB Trading.
“Given that almost two months after the first vote was comprehensively rejected there has been pretty scant progress made, this suggests that it will take more than a small tweak on this deal to gain the support required to passed.
“Assuming the house vote against a no-deal tomorrow, as is widely expected, this ultimately means that a softer version of May’s deal, possibly along the lines of a Norway model, may be pursued – or even a 2nd referendum.”
The rejection of the deal will mean that MPs will vote tomorrow on whether Britain should leave the EU without a deal. If politicians vote for a no-deal that means the UK will leave the bloc on 29 March without any rules of regulations in place to replace those that were in place during the membership of the EU. That is the worst case scenario for the economy because no one will know how to operate in the vacuum of no distinct rules and regulations surrounding trade or immigration.
“The rejection of the Government’s deal tonight leaves British businesses facing continued economic uncertainty at a critical juncture,” said Catherine McGuinness, Policy Chair at the City of London Corporation.
“We are now staring down the precipice. Politicians of every hue must overcome their differences and make avoiding a no-deal Brexit the absolute priority, starting with the vote in Parliament tomorrow. The financial consequences of a no-deal Brexit are well versed and politicians must now act to prevent this from becoming a reality for businesses and households across the country.
“Extending Article 50 would be one way of avoiding the UK crashing out of the European Union without a deal but this would only be a sticking plaster unless the deep, underlying issues are resolved. Politicians must use any extension to work together as a matter of urgency to secure a deal, locking in a legally binding transition within the necessary timeframe.”
If the no-deal option is rejected, there could be a third vote on Thursday on whether Brexit needs to be delayed in order to secure a new deal. However, even if the Article 50 — the notification that Britain will leave the EU — extension is granted, Juncker said last night that “it’s this deal or Brexit might not happen at all.” If the extension is rejected, then Britain is back to leaving the EU without a deal on 29 March.
READ MORE: Brexit can still be delayed, cancelled, or a no-deal despite May’s new agreement
