This week is an important one in the Brexit process and it seems appropriate that it’s all happening in March, given that like the March Hare in Alice in Wonderland, it feels like parliament is late for a very important date. The deadline for the UK’s departure from the EU remains set for the 29th March but there are many important decisions for parliament to make between then and now. View our quick infographic and date-by-date summaries below:
12th March: A vote on the amended deal failed to pass
The first bill scheduled for debate was the updated Brexit deal proposal. On the day of the vote, the Attorney General viewed proposed changes as insufficient to change his legal opinion around the Irish Backstop. The pound fell as a result and the statement rattled MPs who were trying to decide which way to vote. During the day, some MPs who had voted against the deal the previous time came out in favour, but in the end is wasn’t enough. The bill was voted down and lost by 149 votes. This is another humiliating defeat for the Prime Minister but there’s no time to reflect on the outcome. Parliament is due to vote on 13th March on whether to rule out a no-deal scenario.
13th March: Ruling out a ‘no-deal’ scenario
Some MPs believe the ‘no-deal’ option is the only way to stick to the original schedule and ensure the departure of the UK from the EU. Others feel that the consequences of leaving without a deal may have a negative impact on the economy and are hoping to prevent this happening. Theresa May has implied this is a vote of conscience and is therefore withdrawing the whip. This makes the outcome even harder to predict. This situation, coupled with the general nervousness across the market, may mean that the pound is in for another day of volatile fluctuations ahead of the evening’s vote. If parliament votes to accept leaving the EU without a deal, then the UK will leave on 29th March. At this point, the government then has just 11 working days to enact any measures needed to prevent the country grinding to a halt.
14th March: To delay or not to delay?
If MPs reject the idea of leaving the EU without any kind of deal, then another vote follows on the 14th March. This will give parliament a say on whether to request an extension for Article 50, delaying Brexit for a set period until a solution can be found. If MPs vote against adding the extension, then the UK will default to a no deal scenario, and have one less day to get organised for that outcome. If a delay is agreed in parliament, this may provide some breathing room but it’s worth noting that the EU does have it within its power to deny the request and force a departure. All signs suggest they may be amendable to pushing back the deadline but it’s not guaranteed so this option doesn’t offer any certainty.
What does this mean for the pound?
After the schedule of votes was announced, the pound rose against the euro, the US dollar and a basket of currencies. The market appeared to react positively to the opportunities to rule out a no deal, and the chance of an extension. In the interim period before the votes take place, the pound may be vulnerable to rumour and speculation and may therefore see a period of volatility. On the day of the first vote, the pound may continue to fluctuate as investors become nervous about the outcome, and if the second and third votes take place the picture is likely to be quite similar. As for a response to the votes themselves, that may be harder to predict. The pound may fall based on assumed negative consequences of whatever scenario is agreed; equally it may rise due to the fact that there is finally some certainty after a long period of ambiguity. The response to an extension is similarly hard to predict – there may be a brief spike followed by further volatility as it becomes clear that what lies ahead is more uncertainty. Or the circumstances and stipulations of the vote may prompt a different reaction.
How can you protect against fluctuations in the pound?
What’s clear is that whatever happens, and however the pound reacts, the pound is likely to be volatile and the performance of sterling as difficult to predict as the outcome of the vote. If you’re concerned about how currency fluctuations are impacting the cost of your international payments, our expert team can provide guidance on currency movements and explain the range of tools available to manage your risk.