In a last ditch attempt to revive her compromise deal, UK Prime Minister Theresa May managed to extract some additional commitments from the European Union (EU) on Monday evening on the so-called Irish backstop.[1]

However, the unwelcome news for Mrs. May was that her attorney general Geoffrey Cox did not consider the EU’s concessions to be legally binding, and it was this view that was a key driver of another resounding defeat, albeit not quite as thumping as the one she suffered in January.

Free Vote

In the aftermath of defeat, the prime minister announced that there would be a parliamentary vote later today (March 13), on whether to create a statutory prevention of a so called ‘hard/no-deal Brexit’, in a move designed to demonstrate goodwill to the EU, and to appease the majority of the UK Parliament which favors a closer relationship with the EU. She also announced that the vote would be held on a free basis, meaning that she would not try to enforce colleagues to vote along party lines, but would allow them to do so according to their own beliefs.

This has enraged the pro-Brexit contingent within her party, which believes that maintaining a ‘no- deal’ outcome on the table is a crucial negotiating tool and, just as pertinently, because ruling it out would finally thwart their long-cherished objective of making a clean break from the EU.

Should the vote on ‘no deal’ being removed from the negotiations prove successful, a further vote will follow on Thursday which will test Parliament’s wish to extend Article 50 – the statutory act by which the UK triggered the two-year timeframe to voluntarily leave the EU on March 29. Any extension would buy Parliament further time to attempt to resolve the crisis, but tells only half the story: all of the 27 remaining EU member states would have to agree to an extension, and, furthermore, would be unlikely to want the UK to remain within the EU beyond May 5 – the date on which European parliamentary elections are due to take place.

Legal Implications

Should the UK wish to stay beyond that date, legal complications surrounding the fielding of UK candidates at the European elections would need to be resolved. Additionally, many Conservative backbenchers are said to be angry at the suggestion that the EU will charge the UK for any extension, which would be in addition to the £39 billion ’divorce bill’ already imposed.

Mrs. May’s reaction to her parliamentary defeat on Tuesday evening even contained references to a closer realignment with the EU, as well as the possibility of a second UK referendum on Brexit. While this should not be interpreted as a statement of intent, it does nonetheless indicate the reality of having to test the will of Parliament in order to ascertain which (if any) desired outcome can command a majority within the House of Commons.

So far, the apparent skew away from a ‘hard-Brexit/’no-deal’ outcome has been taken positively by sterling in initial trading, but volatility looks set to persist as markets react to every subsequent twist and turn in the Brexit news flow.

[1] As a reminder, the Irish backstop is designed to keep Northern Ireland in the EU Customs Union as a way of avoiding a hard border in the island of Ireland. It remains a controversial policy as it would prevent the wider UK from establishing its own trading policy with the rest of the world.

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Important information

This is a financial promotion. Material in this publication is for general information only. The opinions expressed in this document are those of Newton and should not be construed as investment advice or recommendations for any purchase or sale of any specific security or commodity. Certain information contained herein is based on outside sources believed to be reliable, but its accuracy is not guaranteed. You should consult your advisor to determine whether any particular investment strategy is appropriate. This material is for institutional investors only.

‘Newton’ and/or the “Newton Investment Management” brand refers to the following group of affiliated companies: Newton Investment Management Limited and Newton Investment Management (North America) Limited (NIMNA Ltd). In the UK, NIMNA Ltd is authorized and regulated by the Financial Conduct Authority in the conduct of investment business and is a wholly owned subsidiary of The Bank of New York Mellon Corporation. Registered in England no. 2675952. NIMNA Ltd is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. NIMNA Ltd’s investment business is described in Form ADV, Part 1 and 2, which can be obtained from the SEC.gov website or obtained upon request.

Personnel of certain of our BNY Mellon affiliates may act as: (i) registered representatives of MBSC Securities Corporation (in its capacity as a registered broker-dealer) to offer securities, (ii) officers of the Bank of New York Mellon (a New York chartered bank) to offer bank-maintained collective investment funds, and (iii) Associated Persons of MBSC Securities Corporation (in its capacity as a registered investment adviser) to offer separately managed accounts managed by BNY Mellon Investment Management firms, including NIMNA Ltd.

Certain information contained herein is based on outside sources believed to be reliable, but their accuracy is not guaranteed. Unless you are notified to the contrary, the products and services mentioned are not insured by the FDIC (or by any governmental entity) and are not guaranteed by or obligations of The Bank of New York or any of its affiliates. The Bank of New York assumes no responsibility for the accuracy or completeness of the above data and disclaims all expressed or implied warranties in connection therewith. © 2006 The Bank of New York Company, Inc. All rights reserved.

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