The ‘Brexit Bulldog’ resigns – what now?

David Davis’s resignation throws open the UK’s Brexit debate once again, while Prime Minister Theresa May has yet to receive a response to her new plan from Brussels.

The resignation of David Davis, who has been leading UK negotiations to leave the EU, deals a blow to the consensus the Prime Minister thought she had established at Friday’s Chequers summit. Whether it is followed by a general leadership contest is still to be seen, but from the looks of it the Prime Minister is facing her greatest challenge yet.

However, the expected run on the pound has not materialised. The news comes at a time of general US dollar weakness, as trade war concerns continue to hit the greenback’s rally. And while Davis has been replaced by another Brexiteer in the shape of Dominic Raab, it looks like Theresa May has cabinet backing to push on with a soft Brexit approach.

The real challenge may be getting the new plan through negotiations with the EU. The plan still has a number of problems, not least that it involves some form of agreement similar to those with Norway and Switzerland, and the EU is not keen on either of these.

Trying to predict the outcome of negotiations is fruitless, but we do know that they will go down to the wire, with any resolution coming only just before a deadline expires. In sum, it probably makes sense for the UK to move very slowly on disengaging with the EU, in order to minimise disruption and also to build harmony with its European allies.

The current international situation may help soften the EU’s stance to some extent; two years ago there was no threat of a trade war with the US, but one looks like a real possibility now. And of course there is the NATO question as well; can the EU afford to goad the US when President Donald Trump openly discusses whether the current security arrangements can continue?

Even now, nothing should be ruled out – even a no deal. The Dutch government continues to recruit customs officials in preparation for the worst-case scenario. But betting on Armageddon has never been the best strategy. The eurozone crisis taught us that the EU is very good at agreeing a fudge at the last minute. And the closeness of the UK’s Brexit vote means that there is little real appetite for the hardest of hard Brexits.

We should brace ourselves for more turmoil, both in the UK and in the negotiations. But if May can survive and avoid a general election, we do seem to have the basis for fresh talks. Davis’s departure may not necessarily be the end of the world.

Brexit

Find out what Brexit could mean for the markets and how a hard or a soft exit from the EU could affect traders.

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