Brexit — Theresa May’s final dance?



Bethany Payne, Portfolio Manager, Global Bonds, assesses the latest twists and turns in the path to Brexit.

The UK Parliament’s hopes of carving out a majority for an alternative type of Brexit deal to Theresa May’s withdrawal agreement were curtailed yesterday as none of the eight alternative Brexit options voted on in Parliament on Wednesday evening gained majority support.

Although this inconclusive result was broadly expected, sterling depreciated versus the US dollar as the risk of continued stalemate increased. While leaving the European Union (EU) without a negotiated deal has consistently been rejected, Parliament has also rejected revoking Article 50, even if a no deal Brexit is imminent. The UK Parliament needs to agree a way forward by consensus by 12 April, the new exit date, to completely avoid crashing out of the EU without a deal.

Europhiles did find reason to celebrate though yesterday, as both a confirmatory referendum on any deal and a permanent customs union received more votes than Theresa May’s deal on its second attempt to pass. Parliament may now try to hold indicative votes again as early as next week, with a reduced set of options including a referendum and a customs union option, which may lead to a softer Brexit, in order to find a majority for a different Brexit deal.

In the meantime, focus will fall back on Theresa May’s deal and whether she can resurrect this to hold meaningful vote 3 (MV3) on Friday 29 March or possibly next week. In a bid to gain support from her Eurosceptic party members, Mrs May offered to resign if her deal gets voted through. Eurosceptic ministers started to switch their support in favour of her deal, buoyed by the opportunity to lead the next stage of the negotiations (with a new prime minister from their ranks), but also by the threat that if MV3 does not pass, Parliament could enforce a softer Brexit in line with indicative votes held yesterday.

While Theresa May would have been hoping that her offer of resignation would be enough to get her deal through Parliament she perhaps underestimated the Northern Irish Democratic Unionist Party’s (DUP) hard-line stance against the deal. Without the DUP’s support May’s deal is highly unlikely to pass. The offer of her resignation has also increased political uncertainty as a new Eurosceptic leader of the party may potentially be enough of a threat to make some Conservative MPs, who previously supported Theresa May’s deal, withdraw support in a MV3. This may also put off Labour MPs, who previously would have been inclined to support the deal if it was expected to pass. A new hard-line Eurosceptic prime minister would also struggle to find unity in the Conservative party and would therefore risk a further splintering of the party and lose its fragile majority.

The outcome of recent events increases the risks of a general election, if no path forward can be found in the coming days.

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Janus Henderson Horizon Total Return Bond Fund

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