Brexit Update: Betrayal, Bouncing Bills and Boris’s 17-Minute Victory

There’s been a victory! The UK Parliament has voted yes for the first time to a specific course of action since the Brexit referendum. What next?

This update contains three different sections which can be treated as a pick ‘n’ mix depending on your interests:

  1. Westminster: An update on what is going on in Parliament and the decisions being made on how the Brexit process will progress;
  2. Asset Management: Any updates in the period from regulators, government bodies, etc, that have a direct impact on the asset-management industry – including GBP/USD movements;
  3. Beyond Westminster: Any updates in the period from wider business groups and the like on the impact of Brexit, including companies that have announced movement of operations and/or job losses in the UK.

Brexit Countdown: 7 days to go (officially) …


The quote of the moment comes from Rodrigo Catril1, senior currency strategist at National Australia Bank:


"Sterling remains a sharp object to play with and should be treated with care."

– Rodrigo Catril, National Australia Bank


What a difference a week can make in politics.

In the first half of the week commencing 14 October, common consensus remained that the EU and the UK government could not agree a deal. UK Prime Minister Boris Johnson, however, managed to succeed. A deal had been agreed! The ride since that point has had more highs, lows, twists and turns than a roller coaster, but has ended up back in a familiar position – the UK is currently waiting for the EU to decide on whether or not to grant an extension to the Brexit deadline date.

Johnson’s deal – that has been negotiated with the EU – not only has similarities to former PM Theresa May’s deal, but also has some key differences that have become sticking points for the opposition Labour party and the Democratic Unionist Party (‘DUP’). There has been much heralding from the Conservative Party that Johnson has managed to get rid of the controversial ‘backstop’ from the Withdrawal Agreement. This is (technically) true. However, for Northern Ireland at least, this has been achieved by making the mechanisms of the backstop the norm as opposed to only occurring if a Free Trade Agreement (‘FTA’) was not signed. Johnson also managed to achieve some form of consent for Northern Ireland to these arrangements, which has been important to the European Research Group (‘ERG’) and to the DUP. The removal of mainland UK from this arrangement adds an element of risk that was not present in May’s all-UK backstop – the risk of a no-deal Brexit is simply transferred to December 2020 if a FTA cannot be agreed in 14 months. The second difference in the deal is that commitments made by May on alignment on environmental standards and workers’ rights – that were originally within the legally binding Withdrawal Agreement – have now been moved to the non-legally binding Political Declaration, making them an intention as opposed to an obligation.

Predictably, opposition parties came out against the deal. Indeed, the UK government has also managed to lose the support of the DUP over this deal. ‘Remain’ parties such as the Scottish National Party (‘SNP’) and the Liberal Democrats have been opposed to any deal. While Labour is not necessarily opposed to a deal in principle, the removal of the concessions it had gained from May on environmental protections and worker’s rights means it will also oppose the deal. More crucially, the DUP feels betrayed by this current deal. Not only does consent mechanism not give it a veto over the arrangements, but more importantly, it breaks its single hard red line: it treats Northern Ireland differently from the rest of the UK. Initially, the DUP had indicated that it would not support the deal; however, once its apparent ally – the ERG – decided it would back the deal, the betrayal deepened. The DUP is now all out opposing the deal. This appears to be the end of the DUP/ERG friendship. It was inevitable that this point would come as whilst they had common ground, their red lines were different – the DUP has always placed the union of the UK above Brexit and the ERG has always placed Brexit above the union of the UK.

It was then time to put the deal up for approval in Parliament – in the end, this would take three attempts. The UK government clocked up its ninth defeat in a row when it attempted to have a vote on the deal. An amendment attached to the motion was passed in parliament by a majority of 16 (322-306) that withheld Parliament’s approval of the deal until it had seen the legislation. This triggered the provisions in the Benn Act, which legally required Johnson to ask the EU for an extension. Johnson grudgingly did so, while trying to make as visible as possible that he had been dragged kicking and screaming to this point. Ultimately, three letters were sent to the EU. The first was a photocopy of the text of the letter from the Benn Act which was not signed by Johnson. The second was an explanatory letter from the UK ambassador to the EU – essentially, a “parliament made me do it” letter. The third, and the only one signed by Johnson, was a letter explaining to the EU that the UK government did not want an extension. Despite the unorthodox nature of the request, the EU calmly responded that it had received the request and would consider it. The UK government then attempted to hold the same vote again on the next sitting day. This was predictably rejected by the Speaker of the House as it is parliamentary custom that the same motion cannot be voted on twice in one parliamentary session. It is more than likely that Johnson’s team expected this and that the move was in order to be able to feed the ‘people versus parliament’ narrative that will form part of their election campaign. Less than 24 hours before Members of Parliament (‘MPs’) were expected to vote in principal for the deal, they were presented with the Withdrawal Bill Act, as well as a timetable for the legislation. Many MPs were vocal about the timetable – two full parliamentary days – being far too short for an Act of such importance (for context, an Act that protected 19 wild animals in circuses in the UK had 11 parliamentary days). Accusations abounded that the UK government was trying to ‘bounce’ the Bill through Parliament in order to avoid scrutiny.

Still, the UK government had its first victory since Johnson became PM. Parliament voted to approved the deal in principle and move onto further debates on the legislation by a majority of 30. Despite what happened next, this is significant. It is the first time since the referendum that parliament has voted for a specific course of action related to Brexit as opposed to just against one. Johnson only had 17 minutes to enjoy his victory. The government’s tenth defeat was the vote on the timetable for the Bill, which was defeated by a majority of 14. Johnson responded to this by pausing the legislation until the EU makes a decision on whether or not to grant an extension – pointedly referring to “Parliament’s” extension request.

So where do we go from here?

There are three big decisions to be made by three different parties. Will the EU grant an extension; and if so, for how long? The decision on this is expected to be made public on 25 October. In our opinion, the EU will grant an extension to avoid being blamed for a no-deal Brexit. However, whether this will be a short technical extension to allow the legislation to be passed, or to the requested date of January 2020 (possibly with the ability to leave earlier if a deal is agreed) is more difficult to call. Depending on the EU’s decision, Johnson will have to decide whether to attempt to push the legislation through parliament and risk it being amended away from his intention, or try for a general election. Finally, in this case, Labour will have to try and decide whether or not they will support a pre-Brexit election. See Westminster section.

The Alternative Investment Management Association (‘AIMA’) has produced a guide for members that summarises the Brexit National Contingency measures between the UK and EU member states. Bloomberg reports that trading and flows suggest the optimism that has built up recently is beginning to fade away. See Asset Management section.

The Royal Society warns that Brexit is already harming the UK scientific community. Bloomberg economists conclude that Johnson’s deal will be worse for the economy than May’s deal. See Beyond Westminster section.



Latest Implied Odds From Betting Markets:

Figure 1. Implied Odds of Brexit Outcomes

Implied Probabilities of Brexit Outcomes

Source: Man FRM; 24 August to 23 October 2019. Man FRM calculates the implied probabilities of Brexit outcomes using prevailing odds as priced by UK bookmakers, which are collated on a daily basis. The graph presents the implied probabilities of Brexit outcomes averaged across all UK bookmakers for which data is available, over time. This data analysis is based upon information obtained from third-party sources not affiliated with Man FRM. Man FRM cannot guarantee the accuracy of this data and it should not be relied upon by investors.


What Happened Recently?

The Deal

Key differences to May’s deal:

  • The whole of the UK will leave the customs union, meaning the UK can strike trade deals with other countries. This puts a legal border for customs on the island of Ireland. Technically, the border will be in the Irish Sea with Northern Ireland operating a complex system of additional duties and rebates. Northern Ireland will also need to abide by the EU Single Market rules on goods rather than UK rules, and will have to submit to oversight from the European Courts of Justice. The remainder of the UK will be completely out of both the Single Market and the Customs union, with no insurance policy in place if the UK does not agree an FTA with the EU by December 2020;
  • There is a consent mechanism for the Northern Irish Assembly to be given a vote on the provisions that treat Northern Ireland differently to the rest of the UK. The first vote would be four years after the transition period i.e. no earlier than January 2025. If the Assembly was to vote against the continuation of these measures, then they would cease after two years. If the vote to continue the provisions is approved by a simple majority, they will be in place for another four years; however, if approved by ‘cross-community support’ (i.e. more than 50% of nationalist and more than 50% of unionist members support, or at least 40% from each side but 60% in total), then it would continue for another eight years. The UK will look to make alternative arrangements for a vote if the Assembly is still not sitting at this point (it has not sat since power sharing arrangements collapsed in January 2017);
  • References to a “level playing field” (or the degree to which the UK will agree to stick closely to EU regulations) that were previously in the legally binding withdrawal agreement have been moved to the non-legally binding political declaration;
  • There were concessions on both sides. The EU had said they wouldn’t re-open the Withdrawal Agreement and they did; it also said it wouldn’t outsource customs checks to a third party, which essentially is the case. The UK conceded on taking the whole UK completely out of the EU Customs Union and the veto on the Northern Ireland elements for the DUP.

Similarities to May’s deal:

  • Transition period to 2020 which can be extended by mutual consent by one or two years. Note that this transition period is now shorter than it was as the end date of December 2020 was not amended, despite the extension to the Brexit deadline. What should have been almost a 2-year transition period is now 14 months;
  • UK citizens in the EU and EU citizens in the UK will retain residency and social security rights after Brexit;
  • The UK will have to settle its financial obligations to the EU – now estimated at GBP33 billion;
  • Future UK/EU relationship (a non-legally binding political declaration);
  • Both sides will work towards a loose FTA, with both the UK and the EU upholding “the common high standards … in the areas of state aid, competition, social and employment standards, environment, climate change and relevant tax matters”.
The Reaction
  • The DUP feels betrayed. The deal has broken its one strong red line – it treats Northern Ireland differently from the rest of the UK. This red line was the reason that May moved to a UK-side backstop rather than a Northern Ireland-only one. Johnson tried to make amends by indicating an offer of more than a billion pounds of extra funding to Northern Ireland to try and get the DUP’s support for a deal. This appears to have made things worse: the DUP is “outraged” that the government believes its principles are for sale. The end result of this is that the DUP has stated that it will not support the deal, losing the government 10 votes;
  • The ERG (which has traditionally voted with the DUP) has moved differently and will support the deal. The fact that the deal does not have a continuing customs union for the UK (mainland UK at least) if no trade deal is signed in the transition period means there is still an opportunity for a no-deal Brexit in December 2020. The DUP now feels doubly betrayed and is now willing to actively vote against the deal instead of just not supporting it;
  • Leader of the Brexit Party Nigel Farage has come out against the deal and said that an extension is the most sensible course as the PM should not try and subvert the law by side-stepping the Benn Act. A cynic may say the actual reason for this is once a Brexit deal is done, the reason for the Brexit Party to exist disappears. Basically, Farage needs an election before Brexit happens for any chance of success;
  • Labour has said it will oppose the deal. Its main concerns are that the concessions granted by May within the legally binding Withdrawal Agreement on environmental standard and workers’ rights have now been moved to the non-legally binding Political Declaration. Other opposition parties, including the SNP and the Liberal Democrats, have also taken this stance;
  • The Labour and Conservative Rebels are the key swing votes and Johnson’s team will focus on these to try and pass the vote. Labour rebels represent Leave-voting constituencies and have voted with the government at times. The rebel Conservatives were those expelled from the party for trying to prevent a no-deal Brexit. Still, this does not mean they will be automatically opposed to the deal.
The Vote

Vote Attempt Number One:

  • The UK government proposed a motion for a vote to approve the deal that was in place. Importantly, this would have meant the Benn Act – forcing Johnson to ask the EU for an extension – would not kick in. This plan was derailed when MPs passed an amendment to the motion, saying that Parliament would withhold its approval until they had seen the legislation. This was the government’s ninth defeat in a row. The amendment passed by a majority of 16 votes (322 to 306). This forced Johnson to abide by the Benn Act and ask for an extension – although it was never going to be that straightforward. Three letters were sent to the EU. One was an unsigned photocopy of the Benn Act, the second was a letter explaining why that had been sent by the UK ambassador to the EU and the third was a signed letter informing the EU that the UK government did not want an extension.

Vote Attempt Number Two:

  • The UK government attempted to put forward the same motion to approve the deal on 21 October. Predictably, this was not allowed by the speaker as it was essentially the same motion and also attempted to disregard the motion that was passed on 19 October. Johnson would have expected this and it is likely this was political posturing to feed into the ‘parliament versus the people’ narrative.

Vote Attempt Number Three – The Actual Vote:

  • The UK government released the legislation for the Withdrawal Bill Act at about 8pm on 21 October. A ‘second reading” vote was scheduled for 7pm the next day. This vote is essentially an agreement in principal for the legislation to move forward to a ‘third reading’, where debate is held and amendments can be added. Immediately following this vote, MPs would vote on the ‘program motion’. This is essentially the timetable for debate of the Bill. The government’s proposed timetable was for the House of Commons to finish all stages of the Bill by 24 October – this would be two full days after the second reading vote. To put this into context, the average number of days a bill has been in front of Parliament for other European Legislation has been 26.4 days. The Wildlife in Circuses Act (which impacted 19 animals in the UK) was in front of Parliament for 11 days.2 The accelerated timetable is to allow the Bill to pass through both the House of Commons and the House of Lords and be signed into law before 31 October – Johnson’s promised deadline;
  • The government won the second reading vote by a majority of 30 (329 – 299). The DUP voted against the government. However, the vote passed with the help of 19 Labour MPs and 19 of the 21 conservative MPs that were expelled from the party for voting for the Benn Act. This was a series of firsts: the government’s first victory in a vote since Johnson became PM, and the first time the UK Parliament has voted yes to a specific course of action since the Brexit referendum;
  • Seventeen minutes later, things returned to normal: the government’s tenth defeat was inflicted when it lost the vote on the program motion. Out of the 38 Labour and expelled Conservative MPs that supported the second reading vote, only 15 supported the motion (5 Labour, 10 Conservative). Ironically, if the nine expelled Conservative MPs that voted against the motion had been subject to the government whip and voted with the government, the motion would have passed.

What Happens Next?

  • Upon losing the program motion vote, Labour leader Jeremy Corbyn extended an offer to Johnson to meet to discuss a more sensible timeline for the legislation in Parliament. Johnson responded by ‘pausing’ the legislation until the EU makes a decision on whether or not to grant the requested extension – pointedly referring to it as “Parliament’s” request for an extension. They did meet in the end, but nothing was achieved.

There are now key decisions to be made by the EU, the UK government and the opposition – all of which are interlinked with each other in some form or another.

  • The EU needs to determine whether it will grant an extension and, if so, for what period of time. The decision on this is expected to be made public on 25 October. There appear to be three ways that this will play out:
    • The EU does not grant an extension: In our opinion, this is unlikely. Sound bites from Brussels show a willingness to grant an extension. More importantly – as part of the blame game discussed in our last update – the EU does not want to be seen as the reason for a no-deal Brexit, particularly when the UK Parliament has, in principle, supported the deal;
    • The EU grants a short technical extension possibly to 15 November, 2019: This seems to be the preferred option of French president Emmanuel Macron. However, other EU leaders appear concerned that this would be interfering in domestic politics by forcing the UK Parliament towards Johnson’s deal;
    • The EU grants an extension to the date requested by the Benn Act of 31 January, 2020, but with an option to exit sooner if a deal is agreed. This appears to be the less contentious option for the EU as the date was specified by the UK parliament and there is still the option for Johnson to pass his deal. As a reminder, the decision needs to be unanimous amongst all EU member states;
  • The UK government is also facing two options whether to continue to push to pass the legislation or to try and force a general election. These decisions will be influenced by the EU’s decision on the extension.
  • If the EU grants a short technical extension, the only choice will be to push through with the legislation. In some ways, this may be the preferable extension length for the UK government. It will be able to force an accelerated timetable through as the threat of a no-deal Brexit will have returned. Should the legislation pass both houses, the UK government will go into an election having ‘delivered’ Brexit;
  • If the EU grants a longer extension, this will be more problematic. There won’t be a reason to force through the legislation in a short time-frame and the longer the debate, the more chance of issues being found and amendments being passed that do no align with the government’s plans. The UK government will then need to decide whether to chance pushing the legislation through without a majority or push for an early election and aim for a majority to pass it with ease.

This leads us to Labour.

  • Labour also has a decision on whether or not to agree to an election. Corbyn’s stance has been that he would wait for a no-deal Brexit to be securely off the table before agreeing to an election. It could be argued this is the case if the EU grants a long extension. The party is split almost down the middle between those who believe an election before Brexit is better and those who believe a deal should be passed and a non-Brexit election would be preferable.
Figure 2. Averages of Voter Intentions

Averages of Voter Intentions

Source:; as of 21 October 2019.

Preparations for a No-Deal Brexit:

  • 16 October, 2019 – The government announced plans to engage courier groups to try and ensure urgent medicines and medical products can reach the UK within two days in the event of a no-deal Brexit;
  • Following the defeat of the program motion in Parliament, Johnson confirmed the government will be initiating its no-deal contingency plans, entitled operation Yellow Hammer.

Asset Management

Asset Management and Financial Markets:

  • 16 October, 2019 – Funds Europe3 reported that more than 330 financial services firms with offices in the UK have responded to Brexit by relocating part of their business, moving staff or setting up new entities in the EU. This is an increase of 63 firms since the prior report in March 2019. Ninety-five of the 332 firms are asset management firms;
  • 17 October, 2019 – Chris Cummings4 , the CEO of the UK’s Investment Association (trade body for the funds industry), stated that while the deal is economically worse than May’s deal, it would provide a “welcome certainty to the investment management industry”;
  • 22 October, 2019 – AIMA5 produced a comprehensive summary of the Brexit National Contingencies that are in place between the UK and EU member states. Members can access this here;
  • 23 October, 2019 – Bloomberg6 reported some moves away from the optimism that have caused recent gains in UK stocks, as well as the British pound:
    • There has been an uptick in demand for contracts that protect against declines in the British pound;
    • Whilst the Vanguard FTSE 250 UCITs ETF attracted record-breaking inflows in the week leading up to 18 October, the volume of short bets against BlackRock’s listed fund of large-cap UK stocks increased;
    • Local shares in the UK (companies that get more than 70% of their revenue from the domestic market) still lag behind internally peers.

Exchange Rates:

Figure 3 shows a recent timeline of the GBP/USD movements, while Figure 4 shows the overall movement since the original Brexit deadline on 31 March 2019.

Figure 3. Recent Movements in GBP/USD

Recent Movements in GBP/USD

Source: Bloomberg; between 1 September 2019 and 24 October 2019.


Figure 4. Movement of GBP/USD Since Original Brexit Deadline

Movement of GBP/USD Since Original Brexit Deadline

Source: Bloomberg; as of 24 October 2019.


  • The British pound hit just less than USD1.30 – its highest level since May – after negotiators announced that a deal had been agreed. With the announcement that the DUP would not support the deal, some of these gains were lost as the difficulty of getting the deal through parliament became apparent;
  • Financial Times reported that as of 22 October, 2019, sterling has traded with an intraday range of 1% or more for nine consecutive days. This is the longest streak since July 2016 (the aftermath of the referendum) and the third-longest streak in 10 years.7

Beyond Westminster:

  • The Royal Society8 said Brexit uncertainty was harming UK science. It reported that the UK’s annual share of EU research funding has fallen by EUR0.5 billion since 2015 and that there had been almost a 40% drop in UK applications to Horizon 2020, an EU initiative supporting innovative research. Finally, it reported that 35% fewer scientists were coming to the UK through key schemes, suggesting the UK was a less attractive destination for international science talent;
  • 17 October, 2019 – Bloomberg economists9 concluded that compared to May’s deal, Johnson’s deal was worse for the economy. Long-term growth is predicted to be 1.5% under Johnson’s deal, compared to 1.6% if the UK stayed in the EU Customs Union, 1.7% with May’s deal and 1.9% if the UK remained in the EU;
  • 20 October, 2019 – Jaguar said it would shut its UK factories for one week in an attempt to avoid disruption over the 31 October Brexit deadline.