Posted by Oliver Meredew on November 25th, 2016.
2016 has been an extraordinary year when it comes to UK politics, with the majority of the nation voting to leave the EU, only to have the High Court block the procedure to begin the exit process.
These events have had a profound influence on future forecasts for UK businesses, so just what is the Article 50 ruling all about, and how could it affect your business?
We’ll be taking a look at how events got to this stage, what the latest developments have been, and what the future may hold, both for Brexit and for businesses in the UK.
Before we get into the fine detail of the Government’s appeal, it’s worth remembering why this came about in the first place.
In the aftermath of the June 23rd Referendum, with the ‘Leave’ vote prevailing, it was quickly realised that triggering Article 50 of the Lisbon Convention would be the first official step in getting the UK out of the EU.
At the start of October, Prime Minister Theresa May stated that she would aim to trigger Article 50 in early 2017, by the end of March at the latest. With this rough deadline in place, the Pound dived in value, driving up prices for UK importers and lowering confidence in the UK economy.
Since then, Sterling has managed to recover, though the lingering threat of Article 50 remains. Notably, fresh concerns have recently emerged about the post-Article 50 period, when the UK negotiates with EU members to secure a good deal on trade and immigration, among other matters.
One of the greatest concerns has been that a ‘Hard Brexit’, where the UK leaves the EU quickly and gives up single market access in order to gain control of immigration, may be favoured by the Government.
By comparison, a ‘Soft Brexit’ would take longer and could result in fewer changes, but would likely preserve many of the beneficial links between the UK and EU, such as relatively unrestricted immigration to EU countries and the ability for EU workers to seek employment in the UK.
Before the courts got involved, the Government had planned to trigger Article 50 before the end of March 2017, which sparked fears that a ‘Hard Brexit’ would be the objective.
In stepped a number of concerned campaigners, who made the case that the Government having exclusivity over triggering Article 50 was unacceptable before Parliament also had its say. Among these was Investment Manager Gina Miller, who stated that;
‘The Leavers were arguing about sovereignty…well, this is an issue of sovereignty of Parliament. You need to have a considered debate about what Government needs to do before it makes that irreversible step’.
While controversial, the case was won and the Government has currently been blocked from starting to leave the EU without prior votes and discussions in the House of Commons and House of Lords.
In the wake of this news, the Pound jumped in value, boosted by hopes that triggering Article 50 would be stalled, or that a ‘Soft Brexit’ would be aimed for by Government negotiators. Exporters were aided by the news, as were those businesses looking for investment due to rising UK economic confidence.
The Government did not rest on its laurels in the wake of the successful court challenge, however, quickly announcing that it would bring an appeal to the Supreme Court to protest the verdict. The PM was also adamant that she would be sticking to the March deadline for triggering Article 50.
This was followed by some heavy criticism of the judges who had ruled against the Government in the first place, which placed Government officials in a difficult position.
Despite feeling justified in challenging the lawmakers, the Government was also eventually forced to defend them from some of the slander, though not comprehensively. Highlighting this paradox, the PM said;
‘I believe in and value the independence of our judiciary. […] Of course the judges will look at the legal arguments. We think we have strong legal arguments and we will be taking those arguments to the Supreme Court’.
As it stands after these developments, the Government’s appeal (which it hopes to win) is due to be heard on December 5th, though Supreme Court justices are not expected to announce their verdict until the start of 2017.
With events coming in in rapid succession, such as Boris Johnson’s admission that the UK will ‘probably’ leave the single market and a ‘sledgehammer’ bill being drawn up to force Article 50’s triggering, it can be difficult to predict just what the future holds for the UK’s chaotic efforts to end its EU membership.
Regarding UK businesses, the simple answer is that when, or potentially ‘if’ Article 50 is triggered, the Pound may well crash, due to it setting in place a two-year countdown for leaving the EU. While this eventual split may make it harder to import and gain investment, even the timeframe is not set in stone, as Article 50’s conditions are that;
‘A Member State which decides to withdraw shall notify the European Council of its intention. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification […], unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period’.
This highlights another potential hurdle; due to the complexity of untangling the UK from the EU, leaving the multi-national union might actually take more than the two years provisionally settled upon, thereby dragging Brexit proceedings out beyond 2019. This would extend the uncertainty, but could boost the Pound as it would keep the UK ‘stable’ in the EU for longer.
Additionally, a recently leaked memo (later attributed to Deloitte) has prompted the claim from Ken Clarke that it will take around ‘six months’ to put together a Brexit plan, something that would prevent the PM from meeting her late March trigger target for Article 50.
Yet more delay-based news has come from one of the Supreme Court Judges who will hear the Government appeal, Lady Hale.
Hale’s argument has been that before even triggering Article 50, the Government may have to go through the ordeal of replacing the 1972 act that took the UK into the future-EU, something that could take years.
Putting all of these tangled threads together and stepping back to look at the muddled result, it can be broadly determined that if the Government wins its appeal on Article 50 in early 2017, the Pound will likely plummet, to the disadvantage of some UK businesses with international trade ties.
If the appeal fails and Parliament ultimately decides to opt for a ‘Soft Brexit’, or to hold off on triggering Article 50 altogether, the Pound is likely to rally. Keeping single market access open would increase ease of trade with Europe by preventing harsh tariffs and lengthy customs waits for transported goods.
The Article 50 and overall Brexit situation is only likely to get murkier before it gets clearer, so make sure that you stay up to date with the situation on the TorFX blog for any political or currency-based movements. If you were thinking of taking precautionary measures with currency trades before next year’s Brexit developments, look into your transfer options.
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