Reality and pragmatism urgently needed in this chaotic Brexit process

By Conor Lambe, Chief Economist at Danske Bank

As we approach 29 March – the date the UK was originally expected to leave the European Union – I have lost count of the number of times in the past fortnight that people have asked me, ‘What’s going to happen with Brexit?’

It’s no surprise this has been the topic on everyone’s lips. In the last week alone we’ve seen interventions from the Speaker of the House of Commons, the Prime Minister addressing the nation from Downing Street and a European Council that ran on late into the night.

The European Council meeting seems the right place to start when it comes to considering the next steps in the Brexit process. At that summit, the leaders of the EU27 agreed to extend the Article 50 process and push back the date upon which the UK will leave the European Union.

If the Prime Minister’s Brexit agreement is passed by the House of Commons this week, then the Article 50 process will be extended to 22 May to allow for the full ratification process to take place in both the UK and the EU.

If the agreement is not approved by Parliament, then the extension will only last to 12 April and the UK will have to propose a new way to take the process forward before that date.

Following the decision of the European Council, the draft withdrawal agreement is expected to come back to Parliament for a third meaningful vote this week. However, the Prime Minister has indicated that she may not bring the deal back to the House of Commons if it appears that there is not sufficient support to get it through.

Whether the deal will be approved by Parliament or not is difficult to predict as there are reasons why those on both sides of the debate might vote for or against the agreement.

Recognising that Parliament as a whole leans more towards a soft form of Brexit, the hard Brexiteers may decide to back the Prime Minister’s deal because they see it as the hardest form of Brexit they are ever going to get. But equally, they may reject the deal again and hope that no other form of Brexit can gain a majority and that the UK ends up leaving with no deal. This would be a disastrous outcome to the Brexit process.

For those who wish to remain or maintain a very close relationship with the EU after Brexit, they may vote for the deal in order to remove the risk of a chaotic no-deal exit. But again, they may vote the deal down as they see a path opening up which would lead to a much softer form of Brexit if the deal is rejected.

Passing the draft agreement looks challenging and the expectation appears to be that the House of Commons will again reject the deal if it is put to a vote. Politics is not easy to predict at the best of times so it’s hard to say what way the vote will go but I suspect that it will be closer than the last two were. 

If the deal does pass this week, then the Article 50 process will be extended to May and the formal ratification of the withdrawal agreement can take place. But it’s important to remember that that would not be the end of the Brexit process – far from it.

The next phase of the negotiations will involve reaching agreement on a new, long-term UK-EU relationship. This will be a much more detailed and technically difficult negotiation that will likely take a number of years to conclude. Absolutely nothing we have seen over the last two years leads me to believe that the UK will find a way to conclude these negotiations quickly.

If the withdrawal agreement is rejected again, then the Article 50 period will only be extended for a couple of weeks. The UK Government will then have to find another way to proceed. This would likely be driven by indicative votes in Parliament, which may even take place before a third meaningful vote on the draft withdrawal agreement.

Possible scenarios that could be voted on include pursuing a softer form of Brexit, such as membership of a customs union and possibly even membership of the single market too, a second referendum, a general election or a no-deal Brexit. A no-deal Brexit remains an unlikely outcome given the extent of the opposition to it in the House of Commons. So if we end up in this position, one would suspect that the chances of a softer Brexit, perhaps involving membership of a customs union, will increase. But at this stage, anything is still possible.

While the Brexit process rumbles on, real damage is being done to the UK economy. Business investment fell in all four quarters of last year as Brexit-related uncertainty held firms back from sanctioning large capital spending projects. Earlier this month, the Office for Budget Responsibility cut its forecast for economic growth in 2019 from 1.6 per cent back in October to just 1.2 per cent. This would represent the lowest outturn for economic growth in the UK since 2009. 

With businesses and consumers clearly concerned and frustrated with the Brexit process, it must now be clear that a healthy dose of reality alongside a pragmatic willingness to move forward is urgently needed.

Building a consensus around what Brexit should look like was never going to be easy given how divisive the issue is. But Brexit is taking a heavy toll on businesses and the wider economy. A no-deal Brexit would be disastrous and needs to be formally ruled out, while renewed focus is needed to move this process on and give firms throughout Northern Ireland and the rest of the UK some much needed clarity. 

This article was published in the Belfast Telegraph on 26 March 2019.

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