Brexit cliffhanger extends with conditions; Keep currency exposure hedged

In a moment that marks victory for British Prime Minister Theresa May over her political opponents who wanted a softer approach to leave the European Union (EU), British lawmakers on Wednesday voted in favour of the government's legislative blueprint for Brexit. (Image: Reuters)

When British citizens voted for a decisive Brexit – leaving the European Union – 33 months ago, no one would have anticipated a strikingly contrasting indecisiveness at the political leadership level towards the Brexit deadline. Each day brings new developments from voting out a no-deal scenario to pledging to respect referendum vote, but intriguingly with no easing of uncertainty. Options before the UK remain the same as they were a few months ago; a no-deal exit, a second referendum or an alternate deal.

After the defeat of May’s revised Brexit deal proposal, the UK government had put forward a formal request to the European Union (EU) for an extension of the March 29 Brexit deadline to June 3o. EU, in response, has agreed for an extension, but with conditions.

Pls also read: Brexit: Political logjam to persist

EU has proposed a two-part timetable. It has agreed for a Brexit delay until May 22, provided the UK House of Commons agrees on a withdrawal deal next week.

If Theresa May’s withdrawal deal is rejected again, then Brexit deadline changes to April 12, without any condition.

Positive takeaway is that the UK gets an about two-week breather. The flip side is there is no alternative withdrawal agreement on the table, which means all it still has is this two-week extension.

As of now, there is a slim chance that the UK parliament agrees on Theresa May’s deal proposal which it has voted down twice.

It remains to be seen if the EU’s game theory works for the UK. EU has made it clear that they don’t have any more tangible assurances to offer other than the earlier commitments on Irish Backstop. The UK, assumingly, is also left to fend for itself with May’s withdrawal proposal. Would that make British Parliamentarians fall in line for an agreement? That remains a cliffhanger.

Meanwhile, an online petition is doing the rounds, backed by more than two million people, asking to revoke Article 50 and prevent Brexit. While petitions having more than 100,000 signatures calls for a parliamentary debate, official government stand remains that there is no intention of reversing the Brexit process.

As far as a contingency plan is concerned, Operation Redfold is on stand-by for a no-deal Brexit, which means a military unit of 3,500 soldiers would be operationalised for crisis management in such a case.

The pound sterling has shown surprising resilience in 2019; GBP/USD is up about 6 percent from the December lows. However, given the political backdrop and to err on the side of caution, we think it’s prudent for Indian investors and exporters to keep the pound sterling exposure hedged.