City welcomes May's concessions on Brexit votes

The City has welcomed Theresa May’s concession to the House of Commons that Brexit could be delayed, with hopes rising that a no-deal departure could be averted altogether.

The Prime Minister told Parliament on Tuesday lunchtime that if MPs voted against her Withdrawal Agreement next month, she would allow politicians two further votes. The first, on 13 March, will ask MPs if they want to leave the European Union without a deal. If that is rejected, the following day they will be asked if the UK’s departure – currently slated for 29 March – should be delayed.

May insisted any delay would be short. But the City seized on her comments, with sterling hitting a high against the euro of €1.16.

Further fuelling the optimism, an earlier announcement from the Labour party that it would now support a second referendum along with an amendment by Yvette Cooper to take a no-deal exit off the table.

JR Zhou, market analyst at Infinox, said: “Simply by uttering the word delay, she has given the markets hope.

“The Labour party’s belated call for a second referendum gave the pound an early morning boost, and Mrs May’s lunchtime concession accelerated it past $1.322, its highest level for a month.

“For the markets, the takeaway is simple but irresistible: a no-deal Brexit is longer the default option. For it to happen, MPs will actively have to choose it. Slim though that reassurance is, it has proved catnip for sterling.”

David Cheetham, chief market analyst at XTB, said: “The markets clearly see this as a significant step that goes some way to taking no-deal off the table, even if the PM was at pains to stress that this isn’t the case. Currency markets remain well supported; you have to go all the way back to May 2017 to find a higher pound/euro exchange.

“While there still remains a fair amount of work to be done, the belief that the worst-case scenario will now be avoided is seen as a clear positive for the pound.”

Edwin Morgan, interim director-general of the Institute of Directors, said nearly 80% of the organisation’s members did not want to quit the EU without a deal.

He continued: “Seeing the impasse continue may not be comfortable for businesses, but a disorderly exit could bring unbearable disruption for firms. It is a long time since we have been in a world of easy choices, and while an extension is not an end in itself, it may become a necessity to achieve an orderly exit.”

Andrew Goodwin, associate director at Oxford Economics, sounded a note of caution, arguing that a short delay was unlikely to make much difference. “Ultimately MPs will still have to make the same choice between [May’s] deal, no deal and no Brexit.

“As far as we’re concerned, though the UK’s departure from the EU looks likely to be delayed, the probabilities of the various possible end states has not changed. We still place a 60% chance on the Withdrawal Agreement being implemented, 35% on the UK exiting without a deal and just a 5% probability on the UK remaining in the EU.”

Simon Harvey, FX market analyst at Monex Europe, said May was trying to “hold onto the Brexit process”. He continued: “The promises are merely trying to erode the popularity of the Cooper amendment in order to maintain control of the next steps should her deal fail to be ratified. Any further rally by the pound is therefore dependent on whether Cooper’s amendment passes. The will tie May’s hands in Parliament and forcefully take no-deal off the table.”