Henderson: Brexit update: timing uncertain, destination unknown

In a generally surprising decision, the UK High Court ruled yesterday that the government cannot trigger Article 50 notification, starting the formal process towards Brexit, without parliamentary approval. The government has said that it will contest the decision. The appeal will be heard by the Supreme Court in early December, with a final decision expected later that month or early in the new year. If the Court rules in favour of the government, then today’s decision will probably have no lasting impact on the Brexit process. However, if yesterday’s ruling is endorsed by the Supreme Court, this could significantly influence both the timing of the UK’s progress towards Brexit and the nature of the final outcome.

The ultimate impact of a Supreme Court decision in favour of compulsory parliamentary consultation would largely depend on the type of parliamentary assent that it demanded. If the Court decides that the only form of assent needed is a House of Commons vote, then the impact might be modest. In this case, we would expect Parliament to ratify the referendum result, without too much fuss and the government’s objective of triggering Article 50 in Q1 2017 could still be on the cards. However, if the Court decides that new legislation is required, bringing the House of Lords into the process, then the impact could be far more significant, pushing Article 50 notification into the second half of 2017 or beyond and putting major pressure on the government to modify its plans to get the legislation approved. This path could also lead to more complicated political outcomes as well, giving Scottish and Northern Irish MPs a greater role in the process and raising the possibility of a 2017 General Election.

The initial market response suggests that the High Court’s decision has marginally reduced the risk of a ‘hard Brexit’. We agree with that interpretation. The Brexit strategy that Theresa May outlined at the Conservative Party Conference in October did seem to point towards a fast, hard EU-exit for the UK. While the Court’s decision might ultimately not do much to alter that strategy it does at least introduce a few plausible scenarios in which the government might be forced to reshape its plans. The more the process is delayed and the more parliamentary scrutiny that is introduced, the greater will be the pressure for the government to alter course towards softer versions of Brexit.

For now, we are assuming that yesterday’s the ruling might delay the Brexit process but will not reverse the direction of travel. Still, the range of outcomes remains wide. While the High Court’s ruling has slightly reduced the probability of a ‘hard Brexit’, it has, added more uncertainty to both the timing of the Brexit process and the ultimate destination.

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