May Collapses To Historic Defeat

Theresa May’s government sustained the largest defeat suffered by a government in modern British political history when the “meaningful vote” on the EU withdrawal bill rejected it with a majority of 230. Most observers believe that the magnitude of the defeat means that the deal is dead and cannot be re-presented to parliament after a few minor changes to terms and language have been added. The big question is where does this leave the UK?

In the wake of the vote, the government suggested it would afford time for an opposition debate of no confidence in it which the leader of the opposition promptly tabled. This debate and vote will be held today, but most observers believe that the government will win the vote and remain in power. If that were not to happen, then there would be two weeks for the government to form an administration which could command the confidence of the House, but if no government could be formed (and the opposition would be entitled to try) then fresh general elections would be held.

Once the issue of confidence in the government has been resolved (assuming it passes) then May is required to return to the Commons no later than Monday to outline how she intends to proceed. She has indicated that she wishes to talk to senior parliamentarians to attempt to find a consensus position, yet, incredibly, it remains unclear if this is to include the opposition parties.

During last nights debate, it was clear that many speakers thought that a “no deal” outcome must be taken off the table. If the government will not do this, it is likely that MPs will attempt to force her hand. Equally, many voices suggest that the government must request an extension of the Article 50 notice period to allow more time for negotiations. May has shown great reluctance to do this and such a request would require the unanimous backing of the EU.

The line from EU governments is typically one of regret that the best deal they could offer the UK (within the PM’s red line constraints) had been rejected by parliament. Plainly there is little appetite to re-open negotiations and EU states are demanding that parliament and/or the UK government makes it clear exactly what they want before the EU will make substantive comments. Donald Tusk stated the obvious that the UK could still decide to remain within the EU.

Once the question of the confidence issue is resolved, the official position of the Labour party is that it will back calls for a further referendum, but Mr Corbyn is known to oppose this.

The result caused Sterling to ripple higher against the Euro and other majors, but the gains were never substantial and have been pared back. The only surprise in yesterday’s result was the magnitude of the government defeat which saw 118 of its own MPs vote against it. It seems evident that Forex markets had priced the outcome into the range on Sterling, by and large. Any motion passed which rules out a “no deal” outcome is likely to boost Sterling.

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