UK: October no-deal Brexit risk averted, November election looms – ABN AMRO

Bill Diviney, senior economist at ABN AMRO, suggests that the most recent and crucial of the UK developments has been the passage of legislation forcing the government to request an extension to the Brexit deadline (from the current 31 October to 31 January).

Key Quotes

“A no deal Brexit at the end of October now looks significantly less likely than just a week or so ago (assuming the EU agrees to an extension, which we expect it to).”

“An election is expected to follow, probably in late November. The government has tried repeatedly to call one, but the opposition has blocked this and said that it will continue to do so until a Brexit delay has been secured. As such, we expect an election to be triggered late in October, with the vote to take place in late November or early December.”

“Such an election will prove highly unpredictable; much more than usual in UK politics. Typically, elections are two horse races in the UK, between the Conservative Party and the Labour Party.”

“The least likely outcome to us now is an orderly Brexit. PM Johnson is currently pursuing a variation of the Withdrawal Agreement that turns the much-derided ‘backstop’ into an arrangement that only keeps Northern Ireland (rather than the whole UK) in a form of customs union with the EU. This was the EU’s original proposal, and so it would be hard for the EU to disagree to such an arrangement.”

“The other path to a deal would be a Labour-negotiated variation of the Withdrawal Agreement that includes a commitment to a customs union with the EU. However, Labour has committed to holding a referendum pitting ‘Remain’ against a ‘credible Leave option’. Polling on such a hypothetical Remain vs Deal referendum suggests Remain would win by a wide margin.”