David A. Meier (Julius Baer) | Saturday did not bring certainty to Brexit, after a narrow vote to postpone ratification of the deal until the necessary legislation to implement it has passed Parliament. An eventful week is to be expected in the UK Parliament, and the deal is not dead yet. We remain neutral on the British pound in the short term, as a deal or a delay seem almost equally likely now.
‘Super Saturday’ turned out to be rather ‘squandered Saturday’: an indecisive UK House of Commons simply postponed the decision on Prime Minister Johnson’s deal with the EU. In a narrow 322 to 306 vote, an amendment filed by former Conservative rebel Sir Oliver Letwin was accepted, which withholds approval of the deal until the necessary legislation to implement it has passed parliamentary ratification.
The amendment was tabled mainly to force Johnson to ask the EU for a further 3-month delay of the Brexit deadline, as Saturday’s deal or delay deadline, set by the early September ‘Benn act’, passed without a decision. Johnson answered the big question whether he would comply with law on Saturday night, sending a letter to EU Council President Tusk demanding a delay. However, Johnson did not sign the letter personally but instead sent a second, signed letter asking Tusk not to grant a delay. Saturday’s events were another blow to Johnson, but the deal on 31 October is not dead yet. Johnson plans a next meaningful vote on the deal already today and hopes to pass the legislation (Withdrawal Agreement Bill) this week.
Hefty debates are to be expected, as the sittings will offer the critics plenty of targets, with House Speaker Bercow once again having the potential to tip the scales by setting the agenda. The opposition could try to amend the legislation to prescribe a Customs Union with the EU or a public referendum on the deal. Meanwhile, the Scottish Nationalists are warming up for further court action against Johnson due to his unsigned letter. This week could see further ups and downs for the pound sterling as the news unfolds. However, we believe that the chances for the deal to succeed have improved almost up to 50-50, as insurance for a delay has now been doubled-up. In case of a deal later this week, Brexit would occur on 31 October, with the beginning of a transition period (all unchanged) until the end of 2020, and there would be plenty of new uncertainties as negotiations on the long-term trade regime take place.