Saxo G20 Risk Radar: Plan B for Brexit shows the deal will be amended through parliament

Aurel Dragan 15/01/2019 | 10:54

The UK Parliament votes today on the Brexit deal and we shall find out if it will be approved or there will be modifications. This week, investors’ focus will be on Tuesday’s Brexit vote. The results are expected to come after 19:00 GMT. According to the most recent polls, Prime Minister Theresa May is still on course to lose the ‘Meaningful Vote’ by around 100 ballots. In recent weeks, the government indicated it will accept an amended Brexit deal through parliament, but this strategy is unlikely to win enough MPs.  

Saxo’s G20 Risk Radar identifies potential political risk events in the G20 countries that could have an impact on the market. It is updated on a regular basis with the most up-to-date data.

If this scenario comes to pass, it would be negative for market sentiment, especially GBP,. It would also, however, have limited impact since it has already been priced in by the market. To some extent, it could even be the least-bad scenario (considering the likelihood that May wins is close to zero) since it would leave the door open to at least five post-Meaningful options:

  • • Plan B: PM May could come back to the Commons no more than three parliamentary days after the vote with a Plan B, but it would mean that significant changes have been made to win enough MPs. If not, it could look as a desperate move from to forestall an inevitable defeat – likelihood HIGH.

    • New “hard deadline”: The European Union and the UK could agree on a new “hard deadline” to avoid a doomsday scenario and give May more time to unite her party behind an amended plan – likelihood HIGH.

    • New referendum: This might be an easier way to get out from this political mess. According to NatCen Social Research, in the case of a new referendum, Remain could win (53 percent) versus Leave (47 percent) – likelihood HIGH.

    • No-deal: In the case of a no-deal outcome, it seems more and more obvious that the UK’s trade partners will try to limit the impact of a hard Brexit. Notably, the EU and the World Trade Organization could decide to change their rules to ensure that tariff-free trade can continue, thus reducing the consequences of the UK’s decision on global trade and growth – likelihood MEDIUM.

    • Revoking Article 50 – likelihood LOW.

Though it is a low possibility, we must also consider that the government could face a more significant defeat tomorrow (above 100). The market impact would then be much deeper as it would increase political uncertainty on the potential of a new general election. In this case, it is more likely that the GBP would end the week much lower.

No matter what happens tomorrow, we can already draw a lesson from Brexit: Any country that wants to follow the UK’s path will find the process much more complicated and dangerous than anyone thought. It is probable that Brexit has inoculated other EU countries against even trying to follow this tricky road.

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