Brexit

The UK’s new prime minister, Boris Johnson, has promised to deliver Brexit by 31 October – deal or no deal. Find out what might happen next and how Brexit has already affected the markets.

What is Brexit and what opportunities does it offer traders?

A simple Brexit definition is that it is a contraction of ‘British exit’, and it is a word used to define the United Kingdom’s departure from the EU. So far, the withdrawal process has caused widespread market uncertainty, which in turn has created opportunities for profit. With CFDs, you can speculate on markets rising as well as falling – meaning you have a wider scope to take advantage of the Brexit volatility.

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Markets to watch during Brexit

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Prices above are subject to our website terms and conditions. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Commodities

As ever in times of uncertainty, investors look to commodities such as gold. After experiencing a spike following the initial referendum in June 2016, gold’s price has largely settled over the last few years. That is not to say that it couldn’t spike again, especially given the uncertainty surrounding the next steps for the UK’s departure.

Shares

The effect on shares since the Brexit referendum has been mixed. Some companies have benefitted from a weaker pound and improved economic outlook, and others have struggled. For the most part, the FTSE 100 has remained volatile since June 2016, while the effects of Brexit as far as individual securities are concerned have been quite varied.

Forex

Sterling fell against the euro after the referendum result was announced. However, the EUR/GBP forex pair traded between 0.85 and 0.90 from May 2019 to 23 July 2019 – a period that included Theresa May’s announced resignation and Boris Johnson’s victory in the leadership contest. What will happen in the coming weeks and months remains to be seen, making EUR/GBP a key pair to watch.

Indices

The FTSE 100 and FTSE Mid 250 have both experienced increased volatility since the 2016 referendum as a result of widespread sell-offs and uncertainty on global equity markets. This uncertainty is likely to continue until the deadline has arrived, because Boris Johnson’s election as Conservative Party leader and prime minister means that a no-deal Brexit is a very real possibility.

Brexit: what are the options?

Time is running out for the prime minister to secure a deal, though several options remain on the table.

Renegotiation

While EU leaders have said that the withdrawal agreement itself is not up for renegotiation, there are several points that could still be tweaked or incorporated into it to get a majority of MPs to support it.

Boris Johnson will have to address some parts of the current deal in order to get it through the Commons – especially if Theresa May’s attempts are any gauge of parliamentary opposition to certain parts of the current agreement. This is particularly true with respect to the Irish backstop and a customs union arrangement with the EU.

Indicative votes

Indicative votes offer British legislators the opportunity to voice their opinions on the best way forward in the Brexit negotiation process. In the past, popular proposals have been a confirmatory referendum on any final deal, as well as a customs union arrangement with the EU.

Now that Boris Johnson has taken over, there could be further indicative votes to see whether MPs have had any shift in sentiment following Theresa May’s tenure.

No-deal departure

If a deal has not been approved in the House of Commons by the time that the departure date arrives, a no-deal Brexit is the default legal option. This would see the UK leave the EU with no arrangements for trade or free movement in place.

Boris Johnson has said that he would not be afraid to take the UK out of the EU without a deal in place, but whether he actually has the conviction to do so remains to be seen..

Extending article 50

An extension to article 50 gives the UK and EU more time to work out a final deal with the aim of giving it the best chance of assent in the Commons. Following a summit of European leaders on 10 April, article 50 was extended until 31 October 2019, which now stands as the official departure date.

Mr Johnson ran on a platform of a ‘do or die’ Brexit in the Conservative leadership contest, attesting time and again that the UK will leave on 31 October with or without a deal. As a result, it is highly likely that any attempt to extend the deadline further will be viewed as a volte face, and such a move could result in the prime minister losing support within his own party.

Second referendum

The option of a second referendum on EU membership has been gaining popularity since the initial result was revealed, in part due to claims that the leave campaign misled voters. In fact, support for a second referendum has grown so loud that an increasing number of MPs from across the political spectrum have all declared their support for the idea.

However, this outcome seems unlikely so long as a hard Brexiteer such as Boris Johnson is in Number 10.

Revoking article 50

Another option as far as article 50 is concerned is for the UK to revoke it. The European Court of Justice (ECJ) has ruled that the UK can do this unilaterally, meaning that the decision to do so remains entirely at the UK’s discretion.

However, this option – like with some of those previously-mentioned – is now unlikely with Boris Johnson as prime minister.

General election

A general election remains a possibility because some in Whitehall see it as a means through which the current parliamentary deadlock can be broken. However, it is speculative whether a general election will be called – especially now that the UK has a new prime minister – because it would almost certainly waste precious time that could otherwise be used to negotiate a deal.

How does the new prime minister affect Brexit?

Boris Johnson’s ascension to prime minister means that a no-deal Brexit is now firmly on the table. This is because the former foreign secretary and mayor of London has said time and again that he would be willing to take the UK out of the EU on 31 October without a deal.

A host of politicians, economists and business leaders have urged Mr Johnson to err on the side of caution in this regard. No deal is widely thought of as the least favourable option for the UK’s withdrawal, with some speculating that it would be disastrous for the UK’s economic growth.

That being said, the prime minister has also said that the best-case scenario would be if the UK left with a deal. As a result, many have begun to speculate over whether Mr Johnson is sincere in his remarks regarding no deal, or whether he is simply using the threat of no deal as leverage to secure the best deal possible from the EU.

What is likely at this stage, is that the first three months of Mr Johnson’s premiership will be turbulent. He has to return to Brussels and iron out the issues with the current withdrawal agreement, and he must do so while keeping Eurosceptic factions of his party on side.

Leaders in Brussels have stated that they are open to working with the new prime minister constructively in order to facilitate the ratification of the withdrawal agreement. But, whether the charismatic former mayor will be met with open or crossed arms will become apparent in the coming days and weeks.

Economic impact of Brexit

The UK economy since the Brexit vote

Before the referendum took place, experts speculated that a leave result would cause economic doom – and possibly even trigger a recession. So far, that has not happened. The UK economy has continued to grow, if at a slower pace than had it voted to remain; and unemployment has fallen in the UK steadily since 2016.

However, while the economy is still growing, there have been marked decreases in several British sectors. The automotive industry has supposedly started to slow – with some even commenting that it is failing. Equally, the UK housing market has started to fall, with some traders and economists blaming Brexit.

Adding to this, inflation rates have risen since the referendum, peaking at 2.7% in September 2017. While this may not seem like a massive number, higher inflation rates mean that people with savings could see less return on their money. The value of the pound could also be affected if interest rates get too high.

The UK economy after Britain leaves the EU

A number of experts have speculated on the impact that Brexit will have on the British economy once the UK’s withdrawal is finalised. Some say that the economic slow down is likely to continue, while others have speculated that the UK might actually be worse off than if it had voted to remain.

However, the future economic outlook for the UK depends on whether it leaves with or without a deal. The IMF has warned that a no-deal Brexit risks a recession that could last two years, and long-term predictions – made by the UK government itself – state that UK GDP could decrease by 8% over the next 15 years.2

A large proportion of economists agree that EU membership has a positive effect on trade and economic health. This is because the European trading bloc has no tariffs to move goods across borders. By leaving the EU, it is argued that the UK is subjecting itself to unnecessary tariffs and extra costs that EU member states do not have to worry about.

Those who supported the ‘leave’ vote argue that by cutting ties with the EU, the UK will be able to pursue trade deals with countries such as the US and China. Currently, as a member of the EU, the UK is not allowed to arrange free trade deals of its own. By leaving the EU, this restriction is lifted, which opens the door to economic titans such as the US, but also to emerging market economies such as Brazil and India.

Whether the UK will be able to secure free trade deals of the same size – and which provide the same access to international markets as the EU – remains to be seen.

Learn more about the pros and cons of leaving the EU

Brexit: what are the options?

Time is running out for the prime minister to secure a deal, though several options remain on the table.

A number of options have already been exhausted in the Brexit saga, although several still remain on the table. The options that will be explored depend on which politician succeeds Theresa May as Conservative leader and prime minister at the end of July.

Second referendum

The option of a second referendum on EU membership has been gaining popularity since the initial result was revealed, in part due to claims that the leave campaign misled voters. In fact, support for a second referendum has grown so loud that an increasing number of MPs from across the political spectrum have all declared their support for the idea.

Indicative votes

Indicative votes offer British legislators the opportunity to voice their opinions on the best way forward in the Brexit negotiation process. In the past, popular proposals have been a confirmatory referendum on any final deal, as well as a customs union arrangement with the EU. With a new prime minister set to take office, there could be further indicative votes to see whether MPs have had any shift in sentiment since Theresa May's tenure.

Extending article 50

An extension to article 50 gives the UK and EU more time to work out a final deal with the aim of giving it the best chance of assent in the Commons. Following a summit of European leaders on 10 April, article 50 was extended until 31 October 2019, which now stands as the official departure date. The UK will be allowed to leave before this deadline, so long as a deal is ratified by the Commons.

Revoking article 50

Another option as far as article 50 is concerned is for the UK to revoke it. The European Court of Justice (ECJ) has ruled that the UK can do this unilaterally, meaning that the decision to do so remains entirely at the UK’s discretion.

Renegotiation

While EU leaders have said that the withdrawal agreement itself is not up for renegotiation, there are several points that could still be tweaked or incorporated into it to get a majority of MPs to support it. This will be a task for Theresa May's successor, but whether a fresh British face in Brussels can securea deal remains to be seen.

General election

A general election remains a possibility because some in Whitehall see it as a means through which the current parliamentary deadlock can be broken. However, it is speculative whether a general election will be called because it would almost certainly waste precious time that a new prime minister could use to negotiate a deal.

No-deal departure

If a deal has not been approved in the House of Commons by the time that the departure date arrives, a no-deal Brexit is the default legal option. This would see the UK leave the EU with no arrangements for trade or free movement in place. The last two years of negotiations have been a concerted effort by both British and European leaders to avoid a no-deal departure.

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When will Brexit happen?

The current Brexit deadline is 31 October 2019.

Brexit timeline

Brexit referendum is held – June 2016

The referendum held in 2016 saw over 30 million people turn up to vote. The split was 51.9% in favour to leave, 48.1% in favour of remain.

Result of the Brexit referendum

There was a significant regional variation in the vote: England and Wales voted to leave, while Northern Ireland and Scotland voted to remain. The majority in favour of either option was largest in Scotland, while the result was closest in Wales. Turnout in the referendum was high at 72.2% overall. All in all, the vote revealed a deeply divided Britain: a fact which defined the following months of negotiations, challenges and reprisals.

Leave vote share Remain vote share Leave/Remain Turnout
England 53.4% 46.6% Leave 73%
Northern Ireland 44.2% 55.8% Remain 62.7%
Scotland 38% 62% Remain 67.2%
Wales 52.5% 47.5% Leave 71.7%

The result took the government by surprise. David Cameron resigned from number 10, and was replaced by Theresa May following a leadership contest within the Conservative Party. She confirmed that the UK would leave the EU with her famous ‘Brexit means Brexit’ soundbite, despite being in favour of remain before the result was announced.

Article 50 is triggered – March 2017

Article 50 was triggered on 29 March 2017, starting the official two-year countdown to Brexit. What followed was a period of planning by EU and UK negotiators, lasting until June 2017 when negotiations began. In the interim, Theresa May called a snap election, hoping to boost the Tory’s parliamentary majority and strengthen the government’s bargaining power with EU leaders.

The plan backfired spectacularly, as the Conservatives lost their majority and were forced to form a coalition with the Democratic Unionist Party (DUP). Some argue this has weakened the government’s position considerably, as ratification of the final deal will require the backing of the DUP in parliament.

Brexit negotiations begin – June 2017

Negotiations officially began on 19 June 2017, with the UK accepting a phased negotiation timeline suggested by Michel Barnier, the EU’s chief negotiator. Phase one concluded in December 2017, with agreements in place regarding a financial settlement of between £35-39 billion, a soft Irish border, as well as the rights of UK and EU citizens living cross-border.

Phase two ran until mid-November 2018 and focused on the future relationship between the UK and the EU. As part of this phase of negotiations, a transition period of 21 months was provisionally agreed, which is scheduled to start immediately after the leave date. This will give time for the UK to negotiate its future trading relationship with the EU.

The Chequers deal is published – July 2018

The ‘Chequers deal’ – published on 12 July 2018 – was one of the most substantial and most complete plans for Britain’s exit from the EU at the time. It set out the relationship that the UK would seek with the EU following its departure from the union.

Although being approved by the British cabinet, the plan was rejected by the EU in September 2018. Michel Barnier, the EU’s chief negotiator, cited that the integrity of the EU single market was not negotiable and that the UK cannot ‘cherry pick’ the parts of the single market it likes. The single market is reliant on ‘four freedoms’: the free movement of goods, labour, services and capital. The Chequers agreement only made concessions for the free movement of goods, which prompted Barnier’s comments.

The major sticking point was how the border between Northern Ireland and Ireland would work in practice, particularly if the two sides were unable to agree a workable trade deal during the transition phase. This is because the EU is unable to accept a soft border with a country that has different customs arrangements.

Theresa May puts her draft deal to cabinet – November 2018

After many months of negotiation, Theresa May finally put a draft deal – a successor to the failed Chequers agreement – to her cabinet in November 2018. The new deal represented a step towards a soft Brexit, as it detailed a plan for trade during the transition period, the Irish border, the rights of UK and EU citizens.

The prime minister declared that the cabinet had accepted her deal ‘collectively’ following around five hours of discussions on 14 November 2018. However, this terminology implied that the decision was not unanimous, with reports later suggesting that up to ten ministers had offered criticism of the prime minister’s plan – particularly the Irish backstop. Several cabinet members resigned immediately, including Brexit Secretary Dominic Raab. Many other MPs also expressed concerns over the proposed deal.

On 25 November 2018, a summit of EU leaders agreed to the prime minister’s deal. After the announcement, European Commission President Jean-Claude Juncker stated that the decision was ‘not a moment of jubilation but a moment of deep sadness’ in light of Britain’s seemingly solidified departure.

Theresa May’s deal goes to a Commons vote – December 2018

On 10 December 2018, one day before the House of Commons was set to vote on the prime minister’s deal, Theresa May decided to postpone the vote in lieu of serious opposition from both sides of the aisle and speculation the deal would be rejected by the House.

The prime minister promised to return to Brussels to seek assurances from EU leaders on certain aspects of her deal – particularly with regard to clarification on the Irish backstop and whether the UK would be tied indefinitely to a customs union with the EU.

Vote of confidence in Theresa May – December 2018

On 12 December, a vote of confidence in Theresa May was brought forward by her own party. The vote saw 117 Conservative MPs move against her, but she prevailed with 200 voting in her favour. Now, the prime minster is exempt from challenges from within her own party until December 2019, but her government could still face a motion of no confidence from the House of Commons, should a majority of MPs back the idea.

Theresa May’s deal is defeated – January 2019

Following the delay of the first vote, a second vote was scheduled for 15 January 2019. The prime minister’s deal was historically defeated by 432 votes to 202 in the Commons, as had been expected at the time of the first scheduled vote. Her deal included plans for the rights of UK citizens living in the EU and EU citizens living in the UK, as well as for the transition period, a divorce settlement of £39 billion, and a contentious plan for the Irish border.

Many MPs said that the prime minister’s draft agreement was simply a bad deal and that they could not in good conscience give it their support. Because of the thumping defeat, Jeremy Corbyn triggered a vote of no confidence in the government, which took place on 16 January 2019.

Vote of no confidence in the government – January 2019

Theresa May survived a vote of no confidence in her government on 16 January 2019. The result was 325 to 306, a closer margin than was expected. The DUP were key to her victory as it is likely that the government would have lost the vote had its ten MPs rebelled.

Theresa May comes up with ‘Plan B’ – January 2019

Following the defeat of her Brexit plan on 15 January 2019, the prime minister had three parliamentary working days to put forward a ‘Plan B’. Her proposal – presented on 21 January 2019 – proved similar to the rejected deal, with only very minor tweaks. However, the prime minister promised to look again at the contentious Irish backstop with a view to getting the deal through the Commons.

Theresa May’s deal is defeated for a second time – March 2019

Theresa May’s Brexit deal was rejected for a second time on 12 March 2019. While the majority – 391 to 242 – was not as crushing as the vote of 15 January, it still constituted a decisive defeat for the prime minister’s efforts in her Brexit negotiations.

MPs express their desire to avoid no-deal Brexit – March 2019

On 13 March, MPs voted by 321 to 278 in a motion to avoid a no-deal departure. While this vote was not legally binding on the EU or its member states, it indicated that there was strong support for a final deal to be reached before the UK leave the bloc.

MPs express their desire to extend article 50 – March 2019

On 14 March, MPs voted by 413 to 202 to seek an extension to article 50. Theresa May subsequently returned to EU leaders to seek this extension, which she secured.

First round of indicative votes held in the Commons – March 2019

A series of indicative votes was held on 27 March with the aim of highlighting which option had the most support from the Commons. While no option was able to command a majority, a second referendum had the most support. However, whether a second referendum will take place remains to be seen, and it is a highly contentious issue – seen by many to be flying in the face of the initial referendum result.

Theresa May’s deal is defeated for a third time – March 2019

In a move which shocked few within her own party, the prime minister met with her backbench MPs and ministers at the 1922 Committee on 27 March, the same day as the indicative votes. She promised that, should her party get behind her deal, she would step down. This would allow for someone else to lead negotiations on the UK’s future relationship from the EU – most likely a Brexiteer – during the transition period.

However, Theresa May’s Brexit deal was defeated for a third time on 29 March by a margin of 344 to 286.

Second round of indicative votes held in the Commons – April 2019

There was a second round of indicative votes held on 1 April which were aimed at increasing a majority for the most popular options proposed on 27 March. The most popular was a confirmatory referendum with 280 voting in favour and 292 voting against. Meanwhile, a customs union narrowly missed out on a majority, losing by three votes.

The two other options were for common market 2.0 – a proposal to join the single market and a customs union – which was defeated by 21 votes, and a vote proposed by MP Joanna Cherry which would give MPs the power to block no deal by revoking article 50. This proposal was the least popular of the night, with just 191 MPs voting in favour of it and 292 voting against.

Cooper-Letwin amendment is passed – April 2019

On 3 April, MPs voted by 313 to 312 to pass the Cooper-Letwin amendment which would seek a further extension to article 50 to avoid no deal. The vote represents the first indicative vote which has been able to secure a majority in the Commons – though the result is not legally binding on the EU.

Theresa May requests another article 50 extension – April 2019

With the 12 April deadline fast approaching – and with no new developments coming from the Commons – Theresa May wrote to Donald Tusk on 5 April, requesting that the deadline for the UK’s departure be extended to 30 June 2019. In her request, the prime minister made clear that should a deal be passed before 22 May, the UK would not hold European elections, but that the necessary preparations are being made in the event that these elections need to be held.

Equally, EU diplomats stated that even if the UK was bound to hold European elections, the UK could withdraw its MEPs once a final deal had been approved by the Commons. Their space in the European Parliament would be filled by delegates from the remaining 27 European member states.

The Brexit deadline is pushed back to 31 October – April 2019

Following a meeting of European leaders on the 10 April, it was agreed that the deadline for the UK’s departure from the bloc would be pushed back to 31 October – a full seven months past the initial 29 March deadline.

The UK will be allowed to leave the EU before the 31 October, but only if the House of Commons approves the prime minister’s withdrawal agreement.

Theresa May confirms a fourth vote – May 2019

On 21 May, the prime minister announced that she will put her vote to a fourth – and in the eyes of many commentators, final – round of debate in the Commons. She did so in the face of opposition from her own party – with the 1922 Committee and the European Research Group (ERG) voicing strong criticism of the prime minister’s deal, and with some Conservative MPs calling for her resignation.

This criticism grew so strong that Theresa May decided to postpone the vote – which was initially scheduled for the start of June 2019. As a result, a shadow was cast over the future of her premiership – with many in the media beginning to count her remaining time as prime minister in days rather than months.

Theresa May announces that she will resign – May 2019

With no clear or amicable way forward, Theresa May announced that she would resign on 7 June 2019 in light of what many called a failure to deliver Brexit. She promised to remain on as a caretaker prime minister until the result of the leadership contest was announced on 23 July 2019.

Following the vote, Theresa May went to Buckingham Palace to formally tender her resignation to the Queen and set the stage for her predecessor to take over.

Boris Johnson becomes prime minister - July 2019

After a hotly-contested leadership race, Boris Johnson emerged victorious from an initially saturated field of candidates. He secured Britain’s top job with 92,153 votes from Conservative Party members out of a possible 159,320. His opponent in the final two, Jeremy Hunt, secured 46,656.

Now Mr Johnson will have three months to secure a Brexit deal that the Commons approves of, or he could face a similar fate to his predecessor, Theresa May.

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2 The UK in a Changing Europe, 2018