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'No champagne yet' as investors, analysts greet Brexit deal with caution

Excitement among investors and traders fades as they assess parliamentary challenges

Bloomberg & Reuters  |  London 

Boris Johnson
British Prime Minister Boris Johnson smiles as he reads a prepared statement alongside European Commission President Jean-Claude Juncker during a press point at EU headquarters.

For a while, investors and analysts got a taste of what’s in store if they ever escape the long shadow of Unfortunately, most of them think freedom is still a long way off. Assets across Europe briefly surged on Thursday as the markets embraced the news that a deal had been struck in Brussels. But as traders assessed the obstacles ahead, the giddy mood faded.

The deal — struck just in time to present to EU leaders as they gather in Belgium’s capital — still needs the approval of the British Parliament. Northern Ireland’s Democratic Unionist Party (DUP), whose vote may be the key, has said it will not back the accord.

“It might not be time to pop open the champagne quite yet,” said Jim McCormick, the global head of strategy at NatWest Markets. “But even if it is voted down by the UK Parliament, the Tories will have a stronger hand heading into a general election.”

The potential for pound sterling to rally, Petr Krpata, chief currency strategist of ING Bank, is “watered down by the DUP

comments and the subsequent uncertainty about the outcome of the Parliamentary vote.”

Investors should not be too enthusiastic as the endless negotiations and uncertainty over the past three years will take a toll on the country, the experts said. “Even with a agreement, the country will suffer a lot of economic pain as a result of the exit from the bloc,” said Seema Shah, chief strategist, Principal Global Investors. If Johnson can pull off his deal, it will draw a line under three years of political turmoil since the UK voted to leave the world’s biggest trading bloc. If he fails, Britain the prospect of a no-deal Brexit will also come into the equation again.

The math: Does Boris Johnson have the numbers to get it past Parliament?

Target: 320

Once non-voting MPs are accounted for, Johnson needs 320 MPs on his side to win any vote in the House of Commons.

Baseline: 259

The last time Theresa May tried to get her deal through, in March, she had the support of 279 Conservatives. They’re mostly likely to back a Johnson deal too, but there are some problems.

Johnson expelled a group of MPs from the party in September after they backed legislation blocking a no-deal Brexit. There are question marks against 19 former Tories who previously backed May’s deal. On top of that number, one deal-backing Conservative, Chris Davies, lost his seat to a Liberal Democrat in a recall election.

That leaves Johnson 61 votes short.

'No champagne yet' as investors, analysts greet Brexit deal with caution

‘Gaukeward Squad’: 19

The expelled Tories, who take their name from former Justice Secretary David Gauke, are temperamentally loyalists — some had never voted against their party before September. Many of them are looking for a way back in.

Johnson would be doing very well if he got all of them on side.

Democratic Unionist Party: 10

It has deep reservations about anything that creates any kind of border between Britain and Northern Ireland, and on Thursday said it cannot support the deal. But it also fears a no-deal Brexit, or Labour Leader Jeremy Corbyn becoming prime minister.

The Spartans: 28

The self-titled “Spartans” are Conservative MPs who refused to vote for May’s deal. When Johnson became prime minister, the Spartans were adamant they opposed any but the most minimal Brexit agreement. But in recent weeks, they have begun to see the virtues of compromise. Two Spartans, at least, are fairly sure to back a deal: Priti Patel and Theresa Villiers are both in Johnson’s Cabinet.

Labour: 21

May pinned her hopes on winning the support of a significant minority of MPs from the opposition Labour Party who believe the 2016 referendum result must be honored.

She struggled to get more than five to vote with her, but 15 who didn’t back her last time joined some who did in signing a letter this month urging the EU to do a deal.

Independents: 5

Four independent MPs backed May’s deal in March. A fifth, John Woodcock, might also be tempted.

Other MPs: 2

Two possible supporters defy categorisation. Liberal Democrat Norman Lamb, who is stepping down at the next election, represents a seat that voted to leave the EU and has been critical of his party’s anti-Brexit stance. And Jo Johnson, brother of the prime minister, voted against the deal in March, agreed to join his brother’s Cabinet, then resigned. Both could potentially back a deal to settle the issue.

The risks?

This tally gives Johnson a pool of 85 votes from which to find the 61 he needs. It’s tight, but feasible. There is a question, however, of whether the prime minister might lose some support, for example among those Tories who voted for a deal in March and regretted doing so afterward.

First Published: Thu, October 17 2019. 22:22 IST