Fra BNP Paraibas:
KEY MESSAGES
Saturday’s vote on the UK’s withdrawal agreement with the EU is likely to be extremely close in our view. As things stand, our bias is for the deal to be rejected by the UK Parliament.
Moreover, there is lingering uncertainty about the future UK-EU relationship, both in terms of the process of agreeing it and its impact on the UK economy. Nonetheless, with an agreement between the UK and EU now struck, the range of possible outcomes has shifted in a more market-positive direction, in our view. In terms of ultimate outcomes, both deal and revocation have increased in likelihood, whilst no deal has decreased, we think.
Compromise: Achieving an agreement between the UK and EU today required compromise on both sides. For the EU, it meant reopening the agreement and agreeing to replace the previous iteration of the backstop with a new Northern Ireland protocol that sees Northern Ireland remain in the UK’s customs territory, as well as allowing a unilateral exit (‘consent’) mechanism.
In addition, the so-called ‘level playing field’ conditions have been transplanted from the legally-binding withdrawal agreement to the non-binding political declaration. For the UK, it meant agreeing to a border in the Irish sea, effectively, with Northern Ireland applying EU
customs rules, and aligning to EU rules on agri-food products and industrial goods. It also meant agreeing to all the other elements of the withdrawal agreement, including the financial settlement.
A deal being agreed between the UK and EU sets Saturday up to be one of the most important events in the Brexit saga. There are three possible outcomes:
1) Deal is accepted by parliament.
2) Deal is accepted subject to criteria, eg a
confirmatory referendum.
3) Deal is rejected.
In our view, the latter option is the most likely. Of course, the situation is very fluid and the parliamentary arithmetic could yet shift more decisively towards any one of these three outcomes over the next 48 hours. For example, at the time of writing it looks as if proreferendum MPs are more likely to seek a fresh public vote at a later stage of the Brexit legislative process, rather than it being tacked on to Saturday’s vote.
Parliamentary arithmetic: There are 639 voting MPs. Assuming no abstentions, the threshold for success is 320. The government currently has 287 MPs (excluding the Speaker and Deputy Speaker). Even if it is able to win the support of all 21 MPs who were recently expelled from the Conservative party, it will still be 12 MPs short of a majority. After all, the DUP have explicitly rejected the proposals.
