Parliament begins debate on Brexit deal this week

Parliament returns to work this week to begin a fresh round of debates on Prime Minister (PM) Theresa May's withdrawal deal.

It still looks like the deal will not get past parliament, given that there have been no substantive changes to the text. The Democratic Unionist Party (DUP) is still vehemently opposed since the agreement’s backstop would leave Northern Ireland in a separate regulatory area to the rest of the UK. Some in May’s own party are also opposed to locking the UK into an agreement with no clear exit route.

Meanwhile, across the other side of the House, the Labour party remain adamant that they will oppose the deal as well. However, they are still unable to commit to a clear position on Brexit, and their strategy appears to be to cause as much trouble as possible in order to attempt to bring down the government and get a general election that may well see them emerge as the largest party.

The vote itself is expected to take place on 15 January, and from 9 January Parliament will debate the agreement. Of greater importance than the debate itself is what comes next.

One possibility is that the deal will fail and that the government, by 21 January, will make a statement on what it plans to do next. If it believes, as the PM has previously said, that a ‘no deal’ is better than a bad deal then preparations for such a scenario will have to begin in earnest. But members of parliament (MPs) continue to call for the UK to avoid just such an outcome, and we may start to see a cross-party coalition start to form to prevent this.

If her deal is rejected, then it is debatable as to what the PM will do next. She may pivot towards a second referendum, arguing that parliament has not been able to reach a decision. However, she has repeatedly ruled out such a move. Alternately, she may go to Brussels in an attempt to secure concessions now that the vote has failed. Or she may resign, having seen her main policy defeated in the Commons.

It is dangerous to try and guess what the market reaction to any of these outcomes will be. It would make sense to argue that if the vote fails then sterling will drop sharply, as confidence in the UK economy fades. But it could rally, on the basis that a coalition of interests opposed to a ‘no deal’ will take charge.

Whichever of these happens, trading in sterling crosses is likely to be volatile, which makes the use of stop losses even more important than ever.