Brexit extension and snap election still most likely outcome
It has been a while since we last sent out an update. There have been some occasions where we thought about it but in reality not much has happened which has caused us to think about changing our view on Brexit. In our view, the most likely outcome (85%) is another Brexit extension followed by snap election.
The newest development is that the UK government has presented its Brexit plan (for a good overview of its content see The Guardian ). We have been surprised that PM Johnson actually seems close to having a majority behind his proposal , as DUP and some of the hardcore eurosceptics have hinted they may be willing to support such a deal. It is more doubtful whether Labour Brexiteers can support it.
Unfortunately for Johnson, the EU is not as optimistic as some of the British MPs although the EU has not outright rejected the proposal (the EU knows it would make it easier for the UK to blame the EU for a no deal Brexit if this was the case). From a UK perspective, it was a blow that Irish PM Leo Varadkar said that the proposal 'falls short in a number of aspects', see POLITICO . Donald Tusk tweeted yesterday that 'we remain open but still unconvinced ', as the EU 'stands fully behind Ireland'.
Next week is crucial for the Brexit negotiations. The EU ambassadors have set a deadline of 11 October for the two sides to near each other ahead of the EU summit 17-18 October , see The Times . It makes sense, as EU leaders are reluctant to discuss legal details at a summit; they would clearly prefer just to say yes or no to a deal.
In his presentation of the proposal, PM Johnson hinted that it was a 'take it or leave it' proposal and that the alternative is no deal. There are some signs that Johnson may be willing to compromise further but also that the whole UK leaving the customs union is a red line for him (the problem is that avoiding customs checks is a red line for Ireland)
If the two sides cannot agree on a deal at the EU summit, one question we often receive is whether PM Johnson is able to dodge the Brexit Delay Bill (i.e. the bill which requires the government to ask the EU for an extension if Parliament has not agreed to leave the EU with or without a deal by the end of 19 October). In short, the answer is no, as there is no obvious loophole in the wording of the act. The Times has an analysis of five ways to get around the law and finds that it is more or less impossible. If Johnson continues to refuse, the House of Commons will likely bring him down in a no confidence vote, form a 'caretaker' government and ask the EU for an extension.
In our view, the likelihood of both the UK leaving with and without a deal is limited and our base case is another extension followed by snap election. The snap election may take us closer to the end game depending on the outcome. Unfortunately, due to the UK election system ('winner takes all' in each of 650 constituencies), it is very difficult to forecast the election result. We were caught by surprise both when David Cameron secured an absolute majority in 2015 and when Theresa May lost the absolute majority in 2017.
Brexit timeline
Brexit scenarios by 31 October
Brexit outcomes depending on election outcome
Brexit charts
Macro charts
