For such a polarising topic, Brexit did manage to unite the country in at least one way over the past couple of months: nobody can talk about anything else, and everyone wants it to be over one way or another.
Instead, the UK has been presented with a seven-month extension to its departure date. The opening weeks of this stay of execution have been used to take a collective breather, but further twists are unlikely to be too far away.
From UK advisers’ perspective, the daily developments have little specific impact on their business. But the economic uncertainty, if not paralysis, that has resulted cannot be underestimated. From a moribund housing market to the possibility of a new government, the UK’s exit from the EU hangs over intermediaries’ livelihoods as much as it does their personal lives.
“For the time being, the only certainty is that the extension means more uncertainty for longer. That will continue to weigh on business decisions – notably on investment – in turn resulting in sluggish economic growth and poor prospects for an already depressed productivity performance,” says Silvia Dall’Angelo, senior economist at Hermes Investment Management.
Despite the views of the country at large, the political gridlock seen since the start of the year is arguably not due to the current batch of politicians being any worse than their predecessors. It’s simply a belated confirmation of the result of the 2017 general election. Prime Minister Theresa May’s insistence that “nothing has changed” has finally collided with the hard truth that she lost her parliamentary majority two years ago.
The other disadvantage to intransigence as an operating policy is that it tends to be mirrored by other actors. For all the talk of a compromise in the “national interest”, or a government of “national unity”, few want to make concessions. Polling numbers for leaving without a deal or revoking Article 50, respectively, indicate that attitudes have only hardened since the referendum.
A year of elections?
Nonetheless, now that Mrs May has begun negotiating with the leader of the opposition, a compromise is closer to fruition than it has been at any time since 2016.
Whether it will move any nearer is up for debate: both the prime minister and Labour would arguably be in favour of an agreement that sees the UK leave the EU while remaining part of the customs union. But both are aware that this is a deal that, for the moment, would satisfy neither Leavers nor Remainers. From Labour’s perspective, there is also a polling benefit to guaranteeing UK participation in European elections.
The outcome of those elections, coupled with the local voting taking place earlier in the month (see Box 1), could be enough to prompt a return to the polls of a more significant kind. Most analysts agree that the likelihood of a general election has increased in light of recent developments – either called by the prime minister in a bid to restore her parliamentary majority, or by a new Conservative leader seeking a mandate for their own Brexit strategy.
But both routes contain plenty of obstacles. The government’s standing in the polls has been hit since March 29 as its pro-Brexit coalition begins to splinter: some of its voters are returning to right-wing alternatives that are capitalising on the appetite for a harder Brexit deal. What’s more, it’s far from certain that the Conservatives would allow Mrs May to contest another campaign.
While European elections may give more ammunition to her critics, attempts to oust the prime minister have been hampered by the EU agreeing a shorter-than-expected extension to the UK’s departure date. An end-October deadline is long enough to allow all parties to pause for breath, but leaves less space to put in place a new leader – particularly as October 31 comes just a few weeks after the Conservative party conference, the point when a successor would most likely set out their vision for Brexit.
A further complication comes from the fact that current Conservative party rules mean the prime minister cannot face another leadership challenge until December. Such rules are there to be rewritten, but doing so would not happen overnight.
Referendum rerun
In light of all this, the odds on a second referendum have also increased. The way in which such a vote would be conducted remains unclear. Few – seemingly not even the long-running People’s Vote campaign – have a clear sense of which options should be on the ballot. But the path towards this option is now a little more visible.
Parliament is likely to conduct a fresh round of indicative votes when it restarts its deliberations. For all the criticism of the failure to forge a consensus in previous rounds of voting, MPs got far closer to doing so in two weeks than the government had in two years.
A new round may well produce a definitive outcome, particularly if MPs are able to vote via a second preference system. Mrs May has previously suggested she would abide by parliament’s will if a majority was found, though many would take that with more than a pinch of salt.
Still, while the vast majority of Conservatives remain implacably opposed to a customs union, there are reports that a small band previously opposed to a referendum now view it as the most feasible way of avoiding a soft Brexit. And it is the Conservative party that will ultimately have to make a positive decision one way or another: at the last round of voting, the party’s then-315 MPs were unable to muster even 40 votes for any of the main options.
The other possibility is that Mrs May’s deal passes in something close to its original form: either in the next few weeks, with the help of Conservatives now anxious to get any kind of Brexit over the line, or at the end of October, via Labour MPs fearful of a renewed prospect of a no-deal exit. But both groups’ animosity to the prime minister is likely to win the day, so there is still a chance of no deal in October, though Mrs May would probably seek another extension instead.
Brian Hilliard, chief UK economist at Société Générale, sums up much of the current thinking: “Broadly speaking, I remain sceptical of a rapid resolution of the current impasse. I expect the talks with Labour to end in failure and there is still no obvious way for Mrs May to coax or cajole parliament into deciding on a Brexit model that can command a majority. A no deal is still a significant risk, as is an early general election.”
The EU perspective
Would the EU grant a further extension? Such an outcome has rapidly become received wisdom on these shores, and the economic consequences of no deal for the bloc would appear to support that. But a second long extension may be harder to agree than the first – or third or fourth.
A one-off reset makes sense, and a series of resets is also plausible, but shifting from the former mindset to the latter may prove difficult. Some of the other 27 EU member states may think it wiser to bite the bullet while it is still possible and reject any further delays, and any decision requires consensus.
By the same token, there is a chance the narrative of EU division is again misplaced. French president Emmanuel Macron was widely acknowledged as the driving force of the decision to extend by seven months, rather than nine or 12.
But a seven-month extension has benefits for the EU, too. Mrs May does not appear to be widely loved on the continent, but EU27 leaders might nonetheless prefer her to the prospect of a Brexiteer prime minister. And an October extension is helpful from the perspective of blocking a leadership change.
The various periods of parliamentary recess that will take place between now and October must also be factored in: alongside the Easter break, MPs traditionally also have a six-week period over the summer to focus on constituency issues, as well as a month in the autumn for conference season.
All that means we will soon be back to a crunch period for Brexit. A softer outcome is now the bookies’ favourite, but all options remain on the table. Meanwhile, the economic uncertainty for advisers and their clients will continue. If a further extension is ruled out by the EU, the final decision may ultimately be the most binary of them all: the prime minister will have to decide whether to leave with no deal or else revoke Article 50 indefinitely.
