It looks increasingly likely that Britain will have to delay its exit from the European Union if it wants to avoid disorderly and damaging exit from the EU.
The pound jumped against the euro (GBPEUR=X) and the dollar (GBPUSD=X) on Friday after a report in the Evening Standard that the government is considering asking the EU if it can delay Brexit beyond the current legally binding date of 29 March. The report was based on unnamed cabinet ministers.
Prime minister Theresa May’s office quickly denied this was being planned but analysts, investors, and politicians think it’s increasingly likely that Brexit will have to be delayed.
The reason? Britain is running out of time to avoid a messy no deal Brexit — and few people want that to happen.
Parliament is due to vote on May’s Brexit deal next Tuesday and it will almost certainly be voted down. If this happens, “Mrs. May will have only until Monday 21 — three ‘sitting days’ later — to present MPs with a Plan B to debate,” Samuel Tombs, Pantheon Macroeconomic’s chief UK economist, said in a note to clients on Friday. This is due to parliamentary rules on how long a new bill should be debated.
This means the prime minister has almost no time to renegotiate a substantially different agreement with the EU. Even if the PM does manage to table a new proposal in time, it risks being voted down again by MPs. This would leave the UK hurtling towards a no deal Brexit, which people fear could bring food and medicine shortages, as well as damaging the economy.
“Time is fast running out to find and implement an option that lawmakers can rally around,” James Smith, a developed market economist with ING, wrote in a note earlier this week. “One way or another, it’s looking more likely that the UK will be left with no choice but to apply for an extension to the Article 50 period.”
ING produced this graphic illustrating just how tight the timeline could be:
“The most likely way of doing this would be for the UK to apply for an extension to the two-year Article 50 negotiating period,” Smith said. “This would require all EU member states to unanimously agree, which isn’t necessarily a given, although assuming there is a legitimate reason for doing so, we suspect they would cautiously back an extension.”
The odds of Britain leaving the EU by March this year now stand at just 25% on betting exchange Smarkets.
“The No [Brexit by March 2019] contract has been steadily rising as the chance of a Commons defeat approaches and rifts within the Conservative Party remain unhealed,” Sarbjit Bakhshi, the head of political markets at Smarkets, told Yahoo Finance UK. “The 75% high for ‘No’ is a higher price than the ‘Yes’ contract has ever reached.”
The alternative for May would be to simply embrace a no deal Brexit. The government is already planning behind the scenes for this possibility. But Tombs said this scenario risks tearing her own party in two and is unlikely to be pursued.
“Simply pursuing a no-deal Brexit isn’t an option, given that several Conservative MPs have said they will resign from the party and stand as independents if the government goes down this route,” Tombs said.
MPs have also limited the government’s ability to prepare for a no deal Brexit through a series of amendments, putting pressure on May to come up with an alternative deal. Conservative rebel Dominic Grieve called for Theresa May to delay Brexit on Friday.
Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.