United Kingdom: Brexit delayed; final outcome remains unclear
On 21 March the EU agreed to delay Brexit until 12 April to give the UK parliament more time to coalesce around a way forward. While this move shifts the date of a possible no-deal Brexit back by two weeks, it does nothing to reduce political uncertainty, which will continue to hinder business investment and the economy until clarity emerges regarding the final outcome of the Brexit process.
A further vote on the prime minister’s deal is expected next week. If the deal is approved, Brexit will be further delayed until 22 May to allow the passage of necessary legislation. If the deal is rejected—as appears likely—the UK will have until 12 April to decide how to proceed. According to James Smith, an economist at ING: “Those Brexiteers that calculate a long delay is inevitable may…still decide to back it [Theresa May’s deal], while those more moderate MPs that fear ‘no deal’ may also decide to get behind it – although we suspect there will be nowhere near the numbers needed for May to get her deal passed.”
Assuming the deal is rejected, all options remain on the table. Parliament could agree on a softer Brexit stance—in favor of a permanent customs union or continued membership of the Single Market for instance—and subsequently request a further Brexit delay in order to make the corresponding changes to the political declaration with the EU. The UK could also request a further Brexit delay to hold a second referendum or a general election, or could even decide to unilaterally revoke its decision to leave the EU. This last option, however, appears improbable.
It is also perfectly possible that parliament fails to agree a course of action by 12 April. If this is the case, the government could ask for a further delay regardless, although the EU may be reluctant to agree. As Kallum Pickering, an economist at Berenberg, says: “the EU would most likely not grant a longer delay for the UK to just continue voting on May’s deal again.” If the EU refuses a request for a second extension, or the UK decides not to ask for one, the UK would leave the EU with no deal on 12 April, likely severely denting economic activity in the near-term.