Brexit

The deadline has been pushed back to 31 October 2019, but uncertainty still looms over Brexit. Find out what might happen next, and how the final outcome could affect the markets.


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How will the uncertainty surrounding Brexit affect the markets?

Brexit has been causing widespread market uncertainty, partly because no one yet knows what the final outcome will be. Volatility is high on major EUR and GBP currency pairs, and traders should keep track of any movements of the FTSE 100 and FTSE 250, which have become unpredictable in recent months.

Should a deal be agreed, it is likely that stability will return to the markets. As well as this, liquidity could well increase as market participation picks up amid signs of reduced volatility.

Find potential opportunities in markets to watch.



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 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 pair maintained a steady rate of between lows of 0.87 and highs of 0.90 from December 2017 to the beginning of January 2019. Immediately following the defeat of the government’s departure agreement on 15 January, the pound entered a strong recovery. What will happen in the coming days and weeks remains to be seen, making EUR/GBP a key pair to watch.

Indices

The FTSE 100 and FTSE Mid 250 both rose over the course of 2017, thanks to weak sterling performance and an improving UK economy. However, in 2018 both were volatile as a result of sell-offs on global equity markets, and the increasing uncertainty surrounding Brexit negotiations and the proposed deal. The trading relationship with Europe is critical to many firms’ future earnings, so indices are very likely to be affected by the final outcome of Brexit, whatever that might be.

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Brexit: what are the options?

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

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 once the UK leaves the bloc.

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 the prime minister’s 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.

Fourth vote on the prime minister’s deal

Although it has already been defeated three times, Theresa May could bring her deal back for a fourth vote at some point in the future. Whether another vote on her deal will take place depends on how different the deal is to its three failed predecessors; and its success will depend on whether Labour, the DUP, and the prime minister’s own Eurosceptic MPs will back it.

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. One such example would be the possibility of a customs union arrangement with the EU, which is not in the current version of the withdrawal deal. Indicative votes could provide some insight into what can be tweaked in order for the deal to get a majority.

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. Whether a general election will be called remains to be seen, with no one really knowing which way the balance of power would tip.

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. A growing number of MPs are pursuing a national vote on the final agreement with the EU, something which the prime minister has been unwilling to agree to.

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.


When will Brexit happen?

The current and official date for the UK’s departure is 31 October 2019, but the UK will be allowed to leave earlier than this date, so long as the withdrawal agreement is ratified by the Commons.


What's happened in the Brexit timeline so far?

The result

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.

There was a significant regional variation in the vote: London, Scotland and Northern Ireland all backed remain, while England and Wales opted to leave, with 53.4% and 52.5% of the vote respectively. All in all, the vote revealed a deeply divided Britain: a fact which defined the following months of negotiations, challenges and reprisals.

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.

Triggering article 50

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

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 and a provisional agreement

The ‘Chequers plan’ – 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, with Michel Barnier, the EU’s chief negotiator, citing that the integrity of the EU single market is 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, people, 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.

In November 2018, the two sides agreed a deal which would see the UK as a whole remain in a joint ‘customs territory’ with the EU until an alternative trade deal could be reached. However, it remains to be seen if Theresa May can win a commons’ majority for this deal, with critics claiming that such an arrangement will hand control of the UK’s trade to a foreign power.

Theresa May’s draft deal and cabinet’s approval

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.

Delayed Commons vote

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

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.

Defeat of Theresa May’s deal

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. As a result 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

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.

‘Plan B’

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.

Second defeat

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

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

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. Brexit will now occur on 12 April unless a further extension can be agreed.

Series of indicative votes

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.

Third defeat

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. As a result, the UK appears set to be hurtling towards a no-deal departure on 12 April.

Second round of indicative votes

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

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

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 have stated that even if the UK is bound to hold European elections – should there not be a deal in place by 22 May – 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.

Brexit deadline pushed back to 31 October

Following a meeting of European leaders on 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 31 October, but only if the House of Commons approves the prime minister’s withdrawal agreement.

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1 For forex based on number of primary relationships with FX traders (Investment Trends UK Leveraged Trading Report released August 2018).
2 Negative balance protection applies to trading-related debt only, and is not available to professional traders.

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