May's Brexit deal crushed by majority of 149

MPs voted down her deal by 391 to 242 – a smaller margin than the 230 vote humiliation she suffered in January, but still an emphatic rejection of he plan.

There will be a third vote on Thursday on whether to request an extension to Article 50.

Market analysts said the pound had not moved from its earlier lows in the morning, but said May's deal was now dead in the water and a parliamentary rejection of a no-deal Brexit and Article 50 extension could arrest a slide in the currency.

Lee Hardman, currency analyst at global bank MUFG said May should admit her deal was "past the point of no return".

"An opportunity for an extension to Article 50, further indicative votes on alternative options and a potential shift to a softer Brexit should help dampen sterling’s downside risk, with the pound likely moving to 1.3000,” he said.

May's latest devastating defeat came despite a visit to Strasbourg on Monday night for talks with EU officials, from which she returned claiming she had won vital changes to the Northern Irish backstop.

“Let me be clear. Voting against leaving without a deal, and for an extension, does not solve the problems that we face. The EU will want to know what use we want to make of such an extension, and this house will have to answer that question,” a clearly shaken May said in a statement to parliament after Tuesday's defeat.

"Does it wish to revoke Article 50? Does it want to hold a second referendum? Or does it want to leave with a deal, but not this deal? These are unenviable choices, but thanks to the decision that the house has made this evening, they are choices that must now be faced."

Pro-Brexit Labour leader Jeremy Corbyn said there was now a “majority in this house for the sort of sensible, credible and negotiable deal that Labour has set out”, although he made no mention of a second referendum that many in his party are seeking.

“I look forward to parliament taking back control so that we can succeed where this government has so blatantly failed,” he said.

EU chief Brexit negotiator Michel Barnier said: "The EU has done everything it can to help get the Withdrawal Agreement over the line. The impasse can only be solved in the UK. Our 'no-deal' preparations are now more important than ever before."

A spokesman for European Council president Donald Tusk reflected Barnier's concerns and warned that with only 17 days left to the departure date on march 29, the vote had “significantly increased the likelihood of a no-deal Brexit".

He added that the EU would consider an extension to Brexit if asked for one but the 27 other EU member states would expect "a credible justification".

Pantheon Economics chief UK economist Samuel Tombs said he believed MPs would agree on a limited extension of "around three months and then will force the PM to engage in cross-party talks, leading to an agreement for a Norway-style soft Brexit" in the second quarter of 2019.

"The Withdrawal Agreement would be unrevised, but the Political Declaration would be overhauled to bring Labour MPs on side. We still see around a 30% chance of a second referendum, either called by...May or backed by a majority of MPs to break the deadlock, but believe the chances of another election remain slim," Tombs said.

IRISH BACKSTOP RISK 'STILL EXISTS'

Earlier, Attorney General Geoffrey Cox said May’s tweaked withdrawal agreement had reduced the chances of the UK being caught permanently in the Irish backstop – but that the legal risk “remains unchanged”.

May said she had secured “legally binding” changes to the deal via a joint instrument after her Monday talks with European Commission president Jean Claude Juncker, which would ensure that the Irish backstop protocol cannot become permanent.

The backstop is an insurance policy designed to prevent a hard border in Ireland, but some politicians are concerned there is no obvious way out of it. In November Cox conceded the backstop could “endure indefinitely” but believed it a calculated risk and that it was in noone’s interest to allow that to happen.

He was asked to reassess the deal following the last-minute changes, however, and published his advice on Tuesday morning ahead of the vote.

“I now consider that the legally binding provisions of the joint instrument and the content of the unilateral declaration reduce the risk that the United Kingdom could be indefinitely and involuntarily detained within the protocol’s provision, at least in so far as that situation had been brought about by the bad faith or want of best endeavours of the EU,” Cox told May in his written advice.

But crucially, he also warned that “the legal risk remains unchanged” and that in the event of “intractable differences” the UK would have “no internationally lawful means of exiting the protocol’s arrangements”.

INDUSTRY DISMAY

The defeat was received with dismay by the business community, with the Confederation of British Industry director general Carolyn Fairbairn calling the proceedings a "circus".

"Enough is enough. This must be the last day of failed politics. A new approach is needed by all parties. Jobs and livelihoods depend on it," she said.

“Extending Article 50 to close the door on a March no-deal is now urgent. It should be as short as realistically possible and backed by a clear plan."

“Conservatives must consign their red lines to history, while Labour must come to the table with a genuine commitment to solutions. It’s time for parliament to stop this circus.”

The Society of Motor Manufacturers and Traders said the vote "vote leaves us perilously close to the ‘cliff edge’".

"No-deal would be catastrophic for the automotive industry. It would end frictionless trade, add billions to the cost of manufacturing and cost jobs. UK automotive businesses will be put at immediate risk. parliament must reject no-deal and take it permanently off the table,” said the industry group's chief executive Mike Hawes.