Janus Henderson: Brexit ball in the EU’s court

The House of Commons voted against taking control of Brexit proceedings, for at least the next two weeks, as it failed to support the Cooper-Boles amendments, which called for an extension to Brexit talks if no deal has been agreed by the end of February. Prime Minister Theresa May must now return to Brussels to renegotiate the Irish backstop. 

Currency markets reacted negatively with sterling declining as this is currently seen as an impossible task. The EU, seemingly, is not willing to reopen the withdrawal agreement and the UK’s so called ‘Malthouse Compromise’ for a facilitated customs union and technological solutions to avoid a hard border in Ireland, would likely be a rerun of previous unsuccessful negotiations. While a no-deal scenario is still unlikely, these developments increase the risk of accidentally leaving the EU without a deal and plans may intensify from both sides to manage that outcome.

The successful Brady/May amendment did, however, provide much requested clarity to the EU that there is a majority in the UK parliament for the withdrawal agreement if there is an agreed alternative arrangement to the Irish backstop. This leaves the ball in the EU court to choreograph a revised deal that would guarantee support in the House of Commons. If, however, ‘nothing has changed’ in two weeks and there is a failure to have a revised deal ratified by February 13, then MPs will have another opportunity on February 14 to vote to gain control of the Brexit process. An extension to the Article 50, in order to allow time to pass legislation, also seems increasingly likely at present.