In our Outlook 2019, published in November, we set out our views on Brexit. We continue to expect negative effects, although news since the end of last year has changed the dynamics slightly. The most important development, in our view, is the ruling by European courts that the UK can now unilaterally withdraw Article 50, making the March 29 deadline no longer certain.
IERI (Yesterday) the British Parliament rejected the deal by a wide margin reached between the United Kingdom and the European Union on the conditions for leaving the EU, with 432 deputies against and 202 in favour. This represents the biggest defeat for an incumbent government in history, and as a result Labor leader Jeremy Corbyn tabled a motion of no confidence in the government. The government now has 3 days to present its plan B to Parliament.
Let's look at six possible scenarios following the rejection of the agreement:
- Second vote (Almost certain to happen)
Prime Minister Theresa May is likely to meet with the UK's European counterparts to try to win concessions on the Irish backstop and other parts of her deal, to make it more palatable to a majority of MPs, before resubmitting it to Parliament. However, it is still unclear whether it will be approved in a second vote, thus opening the door to other scenarios.
- General elections
Opposition leader Jeremy Corbyn wanted to trigger a vote of no confidence in Parliament and force snap elections, and he did so after yesterday's vote. Currently, Labor and the Conservatives are neck and neck in the polls, so it is not at all clear who will form the new government in this scenario. We believe this scenario is unlikely to happen as, despite their differences on Brexit, the DUP and Tory rebels could still support Prime Minister May, preventing her from passing a no-confidence motion against her leadership.
- Second referendum
Many politicians from both sides have called for a second referendum. However, many unknowns remain. The most important is what question will be put to the electorate. A repeat of the 2016 referendum, where voters were asked whether they wanted to leave or stay in the EU, is very unlikely. The next choice would rather be on the different ways of leaving the EU; some have even proposed a multiple-choice referendum in which voters are asked to express a preference in order of importance. The probability of this scenario has increased sharply in recent weeks.
- Norwegian-style Brexit
This was often presented as a plan B by the British government should the deal be rejected. This would involve UK joining EFTA/EEA to give the UK time to renegotiate the Brexit deal while being outside the EU, thus maintaining very close ties with the EU. However, this would lead to border controls being introduced as the EFTA countries are not part of the customs union, leaving the Irish border issue unresolved. Furthermore, many EFTA/EEA members have expressed their opposition to the temporary accession of the United Kingdom. This scenario is still possible, but we believe a second referendum is much more likely given the shift in political rhetoric.
- No Brexit deal
The UK leaves the EU with no agreement with the EU or any ties to the area and becomes a third country, meaning the end of the free movement of goods, services and people and the re-establishment of customs controls with the EU . Interestingly, the likelihood of this scenario has greatly diminished, especially in light of the European Court of Justice's ruling that the UK can unilaterally withdraw Article 50.
- Brexit is cancelled
In its recent ruling, the European Court of Justice said that the UK can unilaterally revoke Article 50 and cancel Brexit altogether. We believe this is very unlikely as the political cost of ignoring the 2016 Brexit vote would be enormous for all parties concerned.
Given the many possible scenarios after the vote, the uncertainty will not go away anytime soon. However, what is becoming increasingly clear is that the risk of a 'no-deal' Brexit is diminishing rapidly. There is broad agreement that this scenario should be avoided at all costs. The most likely outcome at this point is that a new public vote or some version of May's plan will be approved. This depends on the last minute flexibility shown by the EU.
As for the public vote, it will most likely take place through a second referendum, although we believe it is probable that this could also take place after new general elections. This means that the March 29 Brexit deadline will most likely be extended. The length of the extension would be a determining factor for the type of popular vote, as organizing a referendum takes longer than a general election.
