4 options to avoid Hard Brexit

After signing a divorce deal in Brussels all the British government had to do was to get it approved by the UK parliament. However, a fragile majority and conflict of political interest made it impossible, forcing Prime Minister May to cancel the vote originally planned for 11 December. Is the UK doomed for Hard Brexit? What are the solutions left ahead of the 20 March 2019?

Summary:

• Theresa May cancelled the vote on divorce deal scheduled for 11 December
• May was way short on votes, exposing her political weakness
• European leaders unlikely to offer many concessions
• Early elections, second Brexit referendum and Hard Brexit are among possible options

Option 1: another vote in January

The UK has until 29 March 2019 to approve divorce deal, withdraw from the exit procedure or decide to leave without any deal. The last option, called Hard Brexit, could be catastrophic for the economy and the markets. Opponents of the deal say the Irish Backstop may effectively keep the UK in the EU indefinitely. Theresa May will talk to European leaders to ask for concessions and hope that this will soften opposition at home and another vote could take place until 21 January. This looks like a stretch – European leaders stressed that it was a “take or leave” deal and many politicians in the British parliament have now entrenched themselves in their position so finding 320 votes next month might not be any easier.   

Option 2: new conservative government

A conservative rebel group under Jacob Rees-Mogg wants to oust May but even if they get 48 no-confidence letters, will a new leader be able to accomplish much given that the party lacks the majority in the parliament and is internally fractured? What is more, time will be running out and European leaders might be even less willing to bow to Brexit hardliners.

Option 3: early elections

That is what the opposition would like to see but even a fractured Conservative Party is very far from backing such vote and thus chances for this outcome are slim. Furthermore, it’s hard to see how early elections and more negotiations with the EU could be packed into 3 months.

Option 4: second Brexit referendum

We have now confirmed that the UK can unilaterally withdraw the Article 50, ending the Brexit procedure and it is becoming more and more likely scenario as the time runs out. But what next? Will the Article be triggered again, refreshing the 2-year negotiation window? Will the government have a courage to propose the second Brexit referendum as the polls now suggest most voters would back staying in the EU? These questions are tough to answer now and this uncertainty can stay with the pound until January.

Technical analysis: GBPUSD searches for the low

GBPUSD cracked through the key 1.2650 support zone with a lot of momentum and it may now serve as a resistance. Sadly for the bulls, another such zone might now be at post-referendum lows near 1.20. A break of the zone has confirmed that the pair remains in a clear downward trend -  at least for now.