There was a refreshing, albeit brief, interlude from the Brexit circus over the festive period. But no sooner than the turkey and mince pies had been scoffed, Brexit was quickly back on the table again. As the New Year’s come, we’ve been thrusted straight back into the action, with a meaningful vote taking place. But what exactly is the meaningful vote and why is it so important? 

What is the meaningful vote?

Due to go ahead on Tuesday, 15 January, the meaningful vote is a vote by MPs in the House of Commons on the Brexit deal that Theresa May has agreed with the European Union. The vote is expected to fail, as it was when it was initially going to be put to Parliament in mid-December, and this sense of deja vu is a little frustrating for some who feel we’re in the same position as before. Nothing has been renegotiated or changed with the deal, as Jeremy Corbyn noted during the PMs Questions last week. May argued back that the deal was already the best available for the UK, but then why was the initial vote postponed in the first place? With the deadline of the 21 January for the vote to be put to MPs, it’s unlikely it will be postponed once again. So, it should be going ahead on Tuesday, but what happens next?

House of Commons

House of Commons – where the PM’s deal will be put forward to MPs to vote on.  Source: UK Parliament (CC BY 3.0).

What will be the result of the meaningful vote?

It’s highly likely that the result of the meaningful vote will be that Theresa May’s Brexit plan does NOT get approved. The DUP were crucial in May retaining power with a minority government, as they agreed a confidence and supply arrangement with the Conservative Party. However, the DUP are fiercely opposing the backstop which will keep Northern Ireland as part of the customs union if the UK and EU fail to agree a trade agreement in the two-year transition period.

However, if Parliament votes in favour of the deal, it’s a very different story. For the deal to be approved, all Tory and DUP MPs would have to vote in favour, or cross-party (rebel) support would be needed – though we know there are already more than a couple of Tory rebels opposing the deal. Were the deal to be approved, the transition period would kick in and the UK will retain its EU membership, but would not sit at the table for another two years. This period will be used to discuss a trade deal and a more orderly exit from the European Union.

This will no doubt provide stability and we will see sterling react positively. What will happen in the UK 100 is a little more unknown. Equities certainly like stability but a lot of gains we have seen have been attributed to the depreciation of the pound.

What’s next after the meaningful vote?

With bookies pricing the probability at a 97.1% chance that the vote fails, markets are preparing for this likely outcome. But exactly what course of action will follow this latest Brexit vote? A General Election, an Article 50 extension, a ‘no deal’ Brexit? There are many possibilities that may follow at this stage and each one is just as realistic as the other. The British Pound would certainly like the idea of an extension, which would give parties more time to come up with a deal that will pass through the House of Commons (although the EU has ruled out any further negotiating).

A general election gives parties the opportunity to present a new vision, which may attract the most voters - but both PM Theresa May and Labour leader Jeremy Corbyn have publicly stated they will honour the result of the 2016 referendum. Labour has expressed interests in remaining a part of the customs union, although this does have implications and doesn’t fully separate the UK from the EU… Would this mean another stalemate?

A no deal has previously sent jitters across the markets, and they could even be becoming increasingly more susceptible to the idea. It’s certainly the option that potentially has the most economical impact. Sterling may react negatively to this possibility the closer we get to the withdrawal date. It’s easy to see that we’re not on a clear path and this uncertainty is likely to transcend across to trading and cause heavy market volatility. Determining how markets will react is only half the battle. Determining what actual markets will react may be the more demanding matter, but in reality, any Brexit news could affect a range of markets in different ways.