A2 Global's Brexit Outlook: Political stalemate unlikely to be resolved through new Brexit agreement


Overview

After MPs rejected Prime Minister Boris Johnson’s bid to hold an early election in a vote on 9 September, parliament was officially suspended until 14 October. The move to suspend (or prorogue) parliament was ruled unlawful by a court in Scotland on 11 September, however that ruling is being challenged in the UK Supreme Court.

Under the Fixed-term Parliaments Act, the government requires a two-thirds majority to hold an early election. The main stumbling block to holding a vote is the Labour Party, which said it would only support such a motion if a bill ruling out a no-deal Brexit, whereby the UK leaves the EU without a comprehensive agreement, became law. Current opinion polls show the Conservative Party well-ahead of other parties, indicating it would win 37 per cent of votes, compared to 25 per cent for the Labour Party. The Liberal Democrats, who have positioned themselves as the main ‘stop Brexit’ party, are currently polling at 16 per cent.

Long-established tensions within the ruling Conservative Party over the UK’s relationship with the EU peaked when 21 members of the party voted against the government on 3 September in a bid to prevent a no-deal Brexit. The rebels were subsequently expelled from the parliamentary party.

The publication of government documents outlining Operation Yellowhammer, which assesses the impact of a no-deal Brexit on the UK, including potential shortages of fresh foods, medicines, and long queues at the Port of Dover, has increased public pressure on the government to avert such a scenario. 

Analysis

For Johnson and those within his inner circle, the threat of a no-deal Brexit was viewed as a key feature of his government’s negotiating strategy and a tool that could prompt the EU to drop some aspects of the withdrawal deal, particularly the Northern Ireland-backstop – a draft arrangement that aims to avoid a hard-border in Ireland in the event of a no-deal exit – which ardent Brexiteers bitterly oppose.

The move to prorogue parliament was motivated by a desire to regain control of the Brexit process, however this has been complicated following the Scottish court’s decision. The Supreme Court will decide later this week on whether parliament’s prorogation was unlawful, in which case the government will likely be forced to reconvene parliament.

A deteriorating economic outlook for the UK amid global trade tensions could harm investor confidence in the domestic market. This is reflected in the Bank of England forecast in August, which said the UK economy is set to grow by 1.3 per cent this year, a 0.2 per cent decrease from a previous projection in May.

Market volatility will likely remain elevated, while the British pound (GBP) will continue to fluctuate in response to Brexit-related developments. The currency will drop in value as the risk of a no-deal withdrawal grows. Conversely, it will likely experience gains if details of a new agreement with Brussels become public and possibly if the likelihood of an early election increases.

POSSIBLE SCENARIOS 

Main scenario – Agreement between UK and EU: A last-minute agreement between the UK and the EU, which is unlikely to contain the divisive Northern Ireland backstop. While there has been progress on some issues, the EU is still calling on the UK to provide concrete alternatives to the backstop. Much of the original Withdrawal Agreement will likely remain in place. However, current parliamentary arithmetic suggests that a majority of lawmakers are unlikely to vote in favour of such a deal.

  • This is because MPs, the majority of whom supported ‘Remain’ in the referendum, from the main opposition parties are unlikely to support an agreement that strengthens Johnson’s position by helping him deliver Brexit by 31 October. This will also be the case with pro-Remain, former members of the Conservative Party. For a new agreement to stand any chance of passing through parliament it will require the support of prominent hard-Brexiteer members of the party and the DUP, the largest party in Northern Ireland. Even then, the government will likely still fall short of the required votes. 
  • One way to break the deadlock at this point will be to call for a snap election, which can only take place in November at the earliest. Current polling will discourage the Labour Party from supporting an early election but opposing one could be politically damaging as the party will continue to face claims that it is trying to frustrate Brexit. Failing to take a clear stance on Brexit will further weaken the party’s standing ahead of an early poll. Its success in a new election will also largely depend on its manifesto promises and the performance of its leader, Jeremy Corbyn, as highlighted in the 2017 general election. 
  • A more dramatic move that could force through an early election, will be for Johnson to resign. By doing so, the Prime Minister will step down with his pro-Brexit credentials intact and accuse the other parties of betraying the 2016 referendum result. This will then likely lead to a Labour-led caretaker government, which will lead the country until a snap election is held. Benefiting from growing voter mistrust against the main opposition parties, particularly Labour, the Conservatives could enjoy considerable electoral success if current polls remain unchanged. For Johnson, this is a high-risk move that could backfire if the main opposition parties put together electoral pacts, compromise on a range of issues, and form a workable coalition​. 

Possible but unlikely scenario – New Brexit delay without agreement: Unless there is substantive progress in ongoing negotiations between the EU and UK on a deal by 19 October, another possible scenario is that of a further Brexit delay. Indeed, the Prime Minister is legally required to ask for a new extension until 31 January 2020 if parliament fails to vote in favour of a new deal or a no-deal Brexit before 19 October.

Least likely scenario – No-deal Brexit: Despite being forced to ask for an extension and prevent a no-deal Brexit, Johnson’s government could choose to ignore the law. The severe legal ramifications and adverse implications a no-deal withdrawal will have are likely to discourage the government from pursuing such a scenario, despite promises by Johnson that the UK is committed to leave the EU by 31 October, ‘come what may’. The probability of this scenario will increase, however, if the EU and UK fail to reach an agreement and the stalemate in parliament continues.