The British pound fell after parliament rejected the government’s programme motion to accelerate the timetable for the withdrawal bill, with 308 votes in favour and 322 against. The defeat means that the government will now be unable to leave the EU before the end of October. The potentially good news for the pound and politics more generally, is the likely elimination of a no-deal scenario, as the EU has shown its willingness to offer an extension to Britain’s 31 October deadline for leaving the bloc.
Jeremy Stretch, head of G-10 currency strategy at Canadian Imperial Bank of Commerce, said in a Reuters report that, “For now it seems the market is still generally expecting this is a setback, but not a fatal setback, to a negotiated Brexit. There hasn’t been a rapid uptick in no-deal pricing at this point.”
Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo, added that, “The pound will adjust in a narrow range for the time being. For now, the risk of a no-deal Brexit has receded, but there are still political uncertainties.”
The EU wants to avoid a detrimental no-deal Brexit, as a former Tory Europe minister, also confirmed on the BBC’s Today programme. He said that the EU would not want to be blamed for a no-deal Brexit, so they will offer an extension. As many MPs noted, he said that the withdrawal agreement bill was bigger than many anticipated, and that the government should offer more time in order to get it through parliament. He said: “I see no way that the October 31st deadline can be met anyway now the bill has been paused in the commons. I think the fear in Downing street is partly of rafts of amendments to the bill, but also about the difficulty of governing without a majority ... There are broader questions that underly the disputes about the timings of the Brexit bill.” For him, an election at the end of November or early December was possible but the public won’t be very open to an election just before Christmas.
What happened on Tuesday?
While the withdrawal bill was passed by MPs on its second reading, by 329 votes to 299, 20 minutes later, the government’s programme motion was defeated. The news of passing the Brexit deal was welcomed by the government as Johnson praised MPs for having “embraced a deal.”
But the defeat on the programme motion by 14 votes is a significant blow to the government and could derail the process.
What is a programme motion?
A programme motion is put forward after a government bill has passed its second reading and can be used by the government to set the timetable for debating it as it progresses through the House of Commons. The defeated programme motion on 22th of October argued for a very specific and limited timetable which allowed three Commons days for the entire process– giving enough time so the UK could leave on 31October. The argument goes that the proposed timetable was narrow and didn’t leave enough time for debate.
What happens now?
On Saturday, Johnson wrote to the EU to formally request a delay to Brexit until 31 January. After the defeat on Tuesday, he noted that would “pause this legislation” and await from the EU to grant a possible extension. While during Tuesday’s debate Johnson promised to pull the bill and seek an election if there was an extension, he left the possibility of a short delay open. As he said afterwards, “One way or another, we will leave the EU with this deal.”
A general election is, however, likely, especially if the EU proposes a lengthy delay. With a no-deal Brexit no longer in the cards, it is expected that Labour will support a general election.
Many believe, that despite his declarations against a lengthy delay, Johnson aspires to be the prime minister known for delivering Brexit, so he might attempt to push the bill through parliament before an election.
Paul Dales, Chief UK Economist with Capital Economics, said that a short delay is now possible and would not hurt the pound: "A delay to Brexit now appears the most likely scenario and the chances of a near-term deal have diminished a bit. A short delay to finalise a deal would not be a blow to economic growth and the pound, especially if it were followed by a deal that would eventually prompt both to rise. In that case, we suspect the Pound would climb pretty quickly."
On a lighter note, Guy Verhofstadt tweeted that on the event of an extension, he would be submitted to “another three weeks listening to Farage,” whose Eurosceptic rhetoric is not sonorous to European ears.
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