The UK’s High Court ruled late last week that Parliament must vote to trigger Brexit. Reaction to this ruling has been as divisive as the Brexit vote itself.
The roller coaster called Brexit just flew down yet another dark tunnel. GRI reported at the start of last week that our Future Generator signal forecasted negative media sentiment towards the UK until at least November 7. That prediction quickly came to light.
On November 3, the UK’s High Court declared that Prime Minister Theresa May does not have independent authority to trigger Article 50 – the formal process that the UK must follow to leave the European Union (EU). Instead, British Parliament must vote on the Government’s negotiation strategy before the UK begins its two-year negotiation process to leave the EU.
The High Court’s ruling is a blow to May’s public goal of fulfilling a “hard Brexit” in which the UK would leave the EU’s single market in exchange for immigration control. It also confirms that plans to start negotiations could encounter even more delays – a process that will increase skepticism amongst investors and anger amongst Leave voters.
Financial markets jump for joy
Markets showed an almost instantaneous reaction. The pound soared to a four-week high against the dollar and euro after the UK High Court’s ruling reignited hopes that a “soft Brexit” might be possible:
News that the UK might retain continued access to the EU single market – and therefore keep its access to free trade within the bloc – also boosted domestic stocks including Marks & Spencer and The Royal Bank of Scotland.
This reaction implies market preference for a soft Brexit and increased confidence from investors that Parliament will push for this. Since most British MPs voted for Britain to remain in the EU, there might be little reason for investors to think that their stances have changed.
The media reacts with rage
By contrast to financial markets, some media reaction to the High Court’s ruling was swift and harsh. The Daily Mail’s November 4 cover did not disguise its contempt. The Sun screamed, “Loaded foreign elite defy will of Brit voters.” Few were more dramatic than Daily Express, which screamed on its cover that “Three judges yesterday blocked Brexit” and lamented, “Truly, November 3 was the day democracy died.”
Such headlines show the British Parliament’s dilemma. The Brexit referendum results were not legally binding. In 2010, David Cameron’s government declared that referendums “cannot be legally binding in the UK…because of the sovereignty of Parliament.”
The London Evening Standard explained this in more detail last month:
“In October 2010, in response to a House of Lords committee ruling, then-constitutional reform minister Mark Harper agreed: ‘Under the UK’s constitutional arrangements, Parliament must be responsible for deciding whether or not to take action in response to a referendum result.’
“However the 2010 report by the House of Lords Select Committee on the Constitution also stated on referendum results: ‘It would be difficult for Parliament to ignore a decisive expression of public opinion.’”
Therefore, the British Parliament is not simply within its legal rights to act on the Brexit referendum results; this is the essence of its role in such situations. Press implications to the contrary misrepresent how the UK’s democracy works. But if the British Parliament chooses to ignore that democracy’s votes, its MPs could risk career suicide.
All remain united by uncertainty
Despite their divisive reactions, financial markets share one distinct trait with The Daily Mail: a lack of clarity. The UK Government will challenge the High Court’s ruling, likely on December 7 or 8. But even if this ruling is upheld, it is likely to bring a prolonged process that could scare off investors and cause furor among citizens.
Not everyone believes that the pound’s short-term recovery is cause for celebration. Jordan Rochester, a currency analyst at Nomura, told The Telegraph that the pound is likely to continue trading at lower rates. He also reiterated that the UK’s negotiating strategy remains unconfirmed. In this sense, investors have no more clarity today than they did before the High Court’s ruling.
This is compounded by the fact that the ruling has likely overturned May’s Brexit timetable. She shared at last month’s Conservative Party Conference that she planned to trigger Article 50 no later than March 2017. Doing so would give the UK two years to negotiate its future relationship with the EU, putting the country at an exit in early 2019.
But if the British Parliament can debate the Government’s Brexit strategy, then May’s goal is unlikely to be met. This will leave British investors in the dark until a strategy is articulated. It will also leave UK and EU citizens alike at the mercy of endless laws and trade deals that will need to be rewritten and renegotiated.
In conclusion, the High Court’s ruling has increased the likelihood that Brexit will be delayed if not halted altogether. But everyone is still devoid of concrete insights into what a Brexit strategy might look like, or how long it will take to receive answers. Reactions on behalf of financial markets and the media remain speculative. This shared sense of confusion is, perhaps, the only unity in an increasingly divisive political climate.