An update on Brexit after May wins confidence vote

By Edward Harrison On Dec 12, 2018

Theresa May won the Conservative party confidence vote today by a tally of 200 in favor versus 117 against. While she can now continue on as Prime Minister, the fact that 117 Conservative Party MPs, more than a third of her party, voted against her, shows that she lacks a real sense of authority.

In keeping with her lack of authority, May recognized her weak position. And so, she promised her colleagues, in a closed session just ahead of the vote, that she did not intend to stand for the next scheduled general election in 2022. Whether that garnered her more votes or lost her votes is unknown. Irrespective, she limps out of this vote in an impossible situation.

The Maybot problem

Remain-supporting Conservative MP Anna Soubry told Sky News immediately after the vote what Theresa May’s real problem is. In Soubry’s view, there are only 60-80 hardcore right-wing Brexiteers. And so, the fact that May garnered 117 no votes in the confidence vote tally shows that she has to “change tack.” “She has not come up with a plan B”.

But, when May addressed the media after the vote, she said pretty much the exact same thing she had said the morning before the vote, giving only passing lip service to the need to listen to what MPs are telling her.

Moreover, I heard huge frustration earlier in the week from both DUP leader Arlene Foster and Deputy Leader Nigel Dodds, upon whose votes the Conservative minority government relies to remain in power. They said unequivocally that they had told Theresa May long ago that her deal was a non-starter and that they would not vote for it. And they said they were frustrated because she had not been listening to them, only pulling the vote on the day before it was due to be cast.

In essence, Theresa May has no vision and no strategy. This is something we have seen time and time again, most memorably when the Conservatives lost seats in Parliament when she called a needless election. My view here is that her lack of vision and her stubbornness combine to make her a danger to positive Brexit outcomes. The possibility of the UK crashing out without a deal due to Theresa May’s refusal to revoke Article 50 is real.

Next steps?

I am replacing the confidence vote variable in my list of ten Brexit variables with a Parliamentary no-confidence vote variable. I am also getting rid of the variable about a lack of obvious alternatives to May in the Conservative Party and the variable about fear of a general election since this is out of the Tories’ hands now.

The eight key variables are now:

The deadlines of 21 Jan 2019 for the UK Parliament to have a say on the Brexit deal and 29 Mar 2019 when Brexit will occur
The widespread fear of crashing out of the EU on 29 Mar 2019 without a deal
The lack of obvious ways to deal with the border between Northern Ireland and the Republic of Ireland in a world in which Northern Ireland is not inside the EU
Theresa May’s dependence on the DUP of Northern Ireland to achieve an absolute majority in the UK Parliament
The uncertainty on when and whether the opposition in the UK House of Commons calls for a no-confidence vote in the government
The widespread desire to avoid any kind of second referendum around the Brexit question, no matter which questions are asked, due to the perceived anti-democratic nature of such a vote
Conservative Party division on whether a no-deal Brexit is a viable, non-catastrophic alternative to a deal
The lack of a clear majority in UK opinion polling concerning most of the major issues surrounding Brexit

Theresa May will now try to get the EU to change the Irish backstop in some meaningful way that gets enough MPs on board. But even if she gets the DUP on board, she won’t get Labour or the SNP MPs on board. And she won’t get all of her own MPs on board. Her actions in Europe are completely pointless.

What does this mean for investments and the economy?

There are no good Brexit alternatives on the table right now. Both May’s plan, with its flawed Irish backstop, and the no-deal hard Brexit WTO scenario are fraught with peril. But, it is the no-deal scenario that carries the most risk.

In my view, British risk assets now carry greater risk because of the higher potential for a no-deal Brexit scenario. That’s also bearish for the pound sterling but bullish for UK government bonds.

At the same time, were the UK to leave the EU without a negotiated agreement, we should expect to see negative repressions on EU countries who are the UK’s main trading partners. Ireland and Germany are particularly vulnerable here.

Unless we see signs that Theresa May is open to delaying Brexit or revoking the Article 50 process altogether, UK assets will continue to carry a greater risk.