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United Kingdom Politics February 2019

United Kingdom: No-deal Brexit edges closer; several Labour and Conservative MPs defect

With just over a month before the UK is set to leave the EU on 29 March, Theresa May is sticking to her deal. She continues to try and renegotiate the contentious Irish backstop in an attempt to garner the support of right-wing Conservatives and the Democratic Unionist Party (DUP), even though this is unlikely to be successful. If an updated deal with the EU has not been reached by 26 February, May has promised to give MPs the chance to debate the next steps on 27 February.

One amendment likely to be debated on 27 February could force the government to request an extension of the Article 50 EU withdrawal process under the circumstances where a no-deal Brexit appeared imminent. Although this amendment was defeated on 29 January, it has a greater chance of success this time around; if approved, it would significantly reduce the probability of no deal, which would be good for the British economy. That said, an extension to Article 50 would also prolong uncertainty in the short-term, meaning economic activity would still be more subdued than it would be if a Brexit deal were agreed upon and finalized by 29 March.

In recent days, nine Labour MPs and three Conservative MPs have abandoned their parties. Although this makes parliament more fractured—and could thus complicate cross-party agreements on Brexit—it could also increase the incentive for Theresa May to take a softer stance on Brexit to avoid losing further support. As encapsulated by Kallum Pickering, senior economist at Berenberg: “By further reducing the slim working majority of the Conservative-DUP government to seven from 13, the resignations of three pro-EU Conservative MPs raise the pressure on Prime Minister Theresa May to take the no-deal hard Brexit risk off the table.”

Compared to last month’s Brexit Special Survey, our panelists now see both May’s deal and no deal as more likely. In contrast, panelists now assign a lower probability to an alternative deal and no Brexit. This comes as Theresa May has until now displayed a reluctance to more towards a softer Brexit stance for fear of splitting her party, and as Labour leader Jeremy Corbyn has refused to endorse a second referendum which would pave the way for no Brexit. Looking ahead, the outcome of the likely debate on 27 February will have an important bearing on the probability of the four different Brexit scenarios.

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