One thing is clear from the scale of May’s defeat last night, her deal is impossible to rescue even if she manages to win back the hard liners….
By Aneeka Gupta – WisdomTree
The DUP and Conservative rebels from both sides of the party have pledged support for the Prime Minister.
So, we expect the prime minster to survive tonight’s confidence vote and rule out the possibility of a general election. We expect to see a softer version of Brexit negotiated from then on as cross-party talks progress.
It is hard to determine how Theresa May will approach her cross-party talks which leads us to believe the use of “no-confidence” motions will not stop here, with opposition parties likely to reuse the mechanism if the government fails to find an alternative solution on January 21.
With 72 days to go, the alternative outcomes of referendums or a full renegotiation are less likely.
We heard from the prime minister last night that she was not in favour of a second referendum.
This leaves us with two main possibilities.
The first, more favourable outcome is that a negotiated deal passes with a new plan that modifies the existing framework and allows the government enough to win back the 118 votes from last night’s defeat.
The second outcome would be an early election triggered by an impasse in Parliament. If we do not obtain a new plan by the next key deadline on January 21, this becomes the more likely result as the government runs outs of alternatives.
So far the main reason for the stability in the sterling and UK and European equities in the face of all the political uncertainty in Westminster is the expectation that we may see the extension of Article 50 and an accidental no-deal Brexit may be avoided.
The sterling was broadly stronger in the spot market ahead of the no-confidence vote in Theresa May’s government tonight.
Meanwhile the Euro rebounded from a session low following ECB’s Draghi dovish remarks over the euro-area economic momentum.