The British Pound surged higher yesterday, enjoying its largest one-day gain since November 1st, 2018. The driver behind the move was news that UK PM Theresa May is now going to offer parliament a vote on whether to extend the Article 50 process.
The move, which would delay the official UK leaving date beyond March 29th, represents a massive turn for the PM. Up until recent days, May had remained adamant that such an extension was not an option.
MPs To Get Two Options
Addressing cabinet ministers in a special meeting yesterday, the Prime Minister told MPs that she will now present parliament with an amended withdrawal agreement by March 12th. If MPs vote this deal down, as they did last month with the government’s historic defeat, then parliament will have two following options.
Firstly, MPs will be asked to vote on whether the UK should proceed with a no deal Brexit. This means that the UK would only exit the EU “without a deal on 29 March if there is explicit consent in the House for that outcome”.
If that vote fails, MPs will then vote on whether the UK should request an extension to the Article 50 process, currently due to end on March 29th.
May told MPs:
“Let me be clear, I do not want to see Article 50 extended. Our absolute focus should be on working to get a deal and leaving on 29 March.”
She added that any extension “would almost certainly have to be a one-off.”
PM Can’t Rule Out “No Deal”
However, in response to ministers who have recently threatened to resign unless a “no deal” Brexit is removed as an option, May told MPs that she “cannot take no deal off the table”. She stated:
“The only way to do that is to revoke Article 50, which I shall not do, or agree a deal.”
The likelihood of Article 5 being delayed has caused a strong rally in GBP and UK assets. Investors now perceive that such an extension could run on far longer than currently projected.
Given the concessions that May has already made in the face of such opposition from her own ministers, an extension to Article 50 could well turn out to add another year or two to the current deadline. Meaning that, for now, Brexit will be avoided.
May refused to comment on whether she will be voting in favor of a no deal Brexit. She also refrained from addressing whether Conservative MPs will be encouraged to vote for it via the whipping process. However, recent reports suggest that around 15 – 20 ministers stand ready to vote against a no deal Brexit. And many more are likely torn over the vote.
For now, the market waits to see the outcome of the next vote on March 12th. However, it seems highly likely that MPs will vote against a “no deal” Brexit and in favor of extending the Article 50 process.
GBPUSD has now traded up to a fresh 2019 high, breaking above the prior 1.3217 level. Bulls will now be looking for a break of the 1.3304 Q3 208 top. A move above this level will bring the completion of the large ABCD pattern at 1.3552.