With March 29th (the date of the UK’s withdrawal from the EU) fast approaching, last week has seen the most rapid progress in providing more clarity to the Brexit vote. Most importantly, businesses can now expect a more favorable outcome to the Brexit saga, as compared with previous possible outcomes.

What to expect next

In particular, MPs voted to rule out the possibility of a No Deal Brexit at any time (non-legally binding, leaving still a less than 5% chance for a No Deal Brexit). MPs then approved a bill that stipulates that the UK will ask the EU for an extension of Article 50 beyond March 29th. Prime Minister Theresa May’s deal was resoundingly rejected for a second time earlier this week. However, it will again be tabled in Parliament by March 20th for a 3rd vote.

While the likelihood of passage of May’s deal next week has risen, it remains far from certain (roughly 50% likelihood). With No-Deal Brexit off the table, the political calculus has now changed for both Brexiteers and Remainers. Brexiteers who staunchly opposed her deal are now likely to be more amenable to this option. Meanwhile, Remainers who voted for her deal in the past now may in fact reject her deal. This is because of ambitions of obtaining either a Norway-style Soft Brexit (in which the EU would remain in the Single Market) or even a second referendum.

Potential scenarios
  • Theresa May’s deal passes next week. UK’s transition period for exiting the EU in 2021 would begin. This would bring more certainty to the market, allowing for stronger investment and a strong pound that will aid demand.
    • Companies should work closely with local partners to calibrate upcoming market shifts and how this will impact cost assumptions and spending plans. Some pent-up demand and investment will enter the market, allowing for an uptick in sales amid the improved market confidence
  • Theresa May’s deal does not pass. the UK must decide upon the length of the Article 50 extension, with approval from the EU. A shorter time frame (e.g. through June/July) will help push the UK towards a Norway-style Soft Brexit; a longer time frame (to the end of 2019 or 2020) would allow for a second referendum and/or new elections.
    • Businesses must continue to execute their Brexit plans until there is more clarity on the outcome. Firms should prepare for a longer period of uncertainty, anywhere from three to at least twelve months. This will continue affect investment plans, hiring decisions, as well as cost assumptions and will have a dampening effect on demand in the market for the foreseeable future

Nonetheless, each case carries with it a higher potential for new elections in light of the continued political contentiousness inherent in these Brexit talks. Contact us below to learn more about Brexit, and how different scenarios and developments will impact business.