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Theresa May's Brexit deal will be rejected again by MPs, say analysts

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Britain’s prime minister Theresa May leaves 10 Downing Street in London on 14 March, 2019, ahead of a further Brexit vote. Photo: Ben Stansall/AFP/Getty Images

Prime minister Theresa May’s Brexit deal will be defeated for a third time in parliament next week, according to analysts at banks and consultancies.

“It is highly likely … that Mrs. May will fail if she tries again,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, wrote in a note to clients. His view was echoed by analysts at Morgan Stanley, Credit Suisse, and ING, while UBS said “success is far from certain.”

May is reportedly planning to table a third meaningful vote — dubbed “MV3” — in parliament next week, asking MPs to approve her withdrawal agreement. The first two votes — first in January and again on 12 March — were both voted down by large margins.

While the substance of May’s deal will not have changed, what has changed is the Brexit timetable. MPs voted on Thursday to ask for an extension beyond the 29 March deadline. The prime minister has said she will ask for an extension until 30 June if MPs approve a withdrawal deal by 20 March. If not, she will ask for a much longer delay.

“The prospect of a longer delay and no-Brexit risk rising could still focus the mind of Brexit-supporting MPs to back the Withdrawal deal,” according to Yianos Kontopoulos, the global head of macro strategy at UBS.

Press reports suggest that some hard-Brexit MPs who previously rejected the deal are already softening their stance.

“Some analysts think that Mrs. May might be successful on the third attempt,” Pantheon’s Tombs told clients in a recent note.

“The logic goes that [May] has lost so much control over her MPs — several members of the Cabinet defied the whip on [Wednesday’s] no-deal Brexit motion — that more Brexiteers finally will back the deal, knowing that only softer forms of Brexit, or no Brexit at all, are the alternatives.”

However, Tombs expects the deal to be rejected once again. He said May’s deal remains an “anathema” to the Northern Irish Democratic Unionist Party (DUP), as well as the European Research Group (ERG), an influential group of Brexit-supporting Tories. The prime minister must win over both groups in order to get her deal passed.

Most other city analysts share Tombs’ view. Credit Suisse said it is “skeptical” that the deal will pass due to the continued objections of the DUP and ERG.

“Our base case is that PM May’s deal gets rejected in Meaningful Vote 3 and the UK asks for a long extension of Article 50,” Sonali Punhani, who covers European economics for Credit Suisse, told clients.

Morgan Stanley thinks there’s a 25% chance of May’s deal being approved next week. “The government would have to attract more Labour rebels or the hardcore Brexiteers, neither of which looks likely to us,” economist Jacob Neil wrote.

“In the end it will come down to politics,” according to James Smith, a developed markets economist at Dutch bank ING.

“Whether or not May’s deal succeeds will depend on a) whether the Brexiteers think there is a real chance of a long Brexit delay and b) whether they think Parliament is likely to rally around a softer Brexit alternative,” Smith wrote in a note to clients.

He thinks Brexiteers will be unmoved on both points, suggesting another defeat.

“Ultimately we expect a Withdrawal Agreement to be approved at some point, but the already drawn-out process may have many more months to run before we get there,” Dean Turner, UBS’ chief UK economist, said.

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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