This initiative quickly ran into an obstacle, as investment manager Gina Miller led a legal challenge claiming that the British government did not have the authority to trigger Article 50 without first obtaining the approval of Parliament.
What Does High Court Ruling Mean For Brexit?
The case was taken up by the U.K. High Court, which provided Brexit advocates with a major hurdle November 3, 2016 when it ruled in favour of Miller. The decision was that Prime Minister Theresa May lacks the authority to trigger Article 50 without first obtaining the consent of Parliament. The government argued it had the ability to trigger the article under royal prerogative, which gives ministers the ability to makes decisions on behalf of a monarch. However, the High Court rejected this stance.
Following this decision, the British government announced plans to appeal the decision to the Supreme Court. The Supreme Court has scheduled the hearing, which could take up to four days, for December 7, 2016.
The High Court ruled that referendums are consultative in nature unless it is specified otherwise. According to the decision, "A referendum on any topic can only be advisory for the lawmakers in Parliament unless very clear language to the contrary is used in the referendum legislation in question." In addition, the High Court noted that, "No such language is used in the 2015 Referendum Act."
Joshua Rozenberg, a legal affairs commentator, stated that the High Court based its decision on the argument that by harnessing its executive powers to trigger Article 50, the government would effectively be overriding an Act of Parliament. Through its ruling, the High Court helped validate the sovereignty of Parliament. In other words, the legal body has the power to create laws, and no other entity can overturn them.
Brexit advocates have been rather critical of the High Court ruling, stating that the decision represented an effort to override the outcome of the referendum. "I think there is now going to be an attempt by our political class to overturn a significant part of the referendum result," said Nigel Farage, who previously led the UK Independence Party. "We voted to leave but our political class will not accept the result."
While many Brexit advocates were critical of the High Court ruling, it was noted at the time that the decision might allow lawmakers to slow down, alter or even stop the process of the U.K. leaving the EU. Given this situation, some speculated that if the Supreme Court rejected the government's appeal, Prime Minister May might hold a snap election in an effort to secure a stronger majority.
Previously, May had indicated plans to trigger Article 50 by the end of March 2017. The day she announced that timetable, May announced the Great Repeal Bill, which would nullify the 1972 European Communities Act and place all relevant EU laws on the U.K. statute book once Brexit is complete.
While she indicated a willingness to work with lawmakers on Brexit, May insisted she had the right to set the article in motion on her own. After the High Court invalidated her ability to trigger this article unilaterally, the path forward was less clear. At the time, it was speculated that in the event that the Supreme Court upheld the High Court ruling, Parliament could enact a law giving May the ability to set Article 50 in motion.
However, any efforts to create such a law would inevitably open up the floor for debate. If May needs to work with lawmakers, she may need to provide concessions to these government officials.
Exploring New Ground
Should May obtain a mandate to unilaterally trigger Article 50, this will inevitably create some uncertainty, because no other country in the EU has invoked this particular article. John Kerr, who authored the article, has claimed that even after beginning the process of leaving the EU, the U.K. could still change its mind. The process of leaving the 28-nation consortium is "not irrevocable," he said.
However, the High Court ruling provided a different point of view, stating that once a notice has been given under Article 50, it "cannot be withdrawn."
Impact On British Pound
While the British pound climbed sharply following the High Court ruling, the long-term impact of the legal decision remains to be seen. The pound surged to a four-week high following the ruling, reaching US$1.2493 on November 3. This price represented the highest level the British currency reached since falling 10% in a matter of minutes on October 7, 2016 as part of a "flash crash."
The British pound extended these gains over roughly the next week, reaching US$1.2602 on November 11.
The pound fell sharply in the aftermath of the June 23, 2016 Brexit referendum, and several market observers predicted that the currency could suffer additional losses as the uncertainty surrounding the nation's decision to leave the EU continues to weigh heavily on trader sentiment. Roger Hallam, chief investment officer for Currency Management at J.P. Morgan Asset Management, offered a different point of view, predicting November 3, 2016 that the ruling could combine with robust economic data to fuel gains in the pound.
At any rate, many analysts predicted the currency would encounter greater volatility as the U.K. Supreme Court considered the legal challenge to Brexit. It was speculated that if the Supreme Court upheld the High Court ruling, it could open up negotiations between Parliament and the government, which could contribute to the pound's price gyrations.
However, Nomura currency analyst Jordan Rochester predicted that if the Supreme Court rejected the High Court decision and allowed the U.K.'s plans to break free of the EU to continue, the markets could receive a "wake up call," as a parliamentary review did not mean that the government would drastically change its approach to Brexit negotiations.
"While the market took the news positively as it implied a higher probability of a 'soft Brexit,' it's not yet over and in the long run the pound is likely to trade lower," he said in November 2016.
Supreme Court Ruling
The Supreme Court sided with the High Court, ruling on January 24, 2017 that the government could not trigger Article 50 without first obtaining the approval of Parliament. With an 8-to-3 majority, the nation's highest court decided that Brexit would constitute a major change, and therefore could not move forward without the consent of Parliament.
Reading the judgement, Supreme Court President Lord Neuberger stated, "Withdrawal effects a fundamental change by cutting off the source of EU law, as well as changing legal rights." Therefore, "The U.K.'s constitutional arrangements require such changes to be clearly authorised by Parliament."
The British pound rose slightly following the Supreme Court ruling, climbing from US$1.2517 on January 23, 2017 to US$1.2634 on January 25, 2017. By February 1, 2017, the currency had reached US$1.266.
Following the Supreme Court ruling, both the House of Commons and the House of Lords approved a bill that would allow the U.K. to leave the EU. The House of Commons quickly approved the proposed legislation, while the House of Lords attached two amendments to the bill: one that would allow EU citizens to stay in the U.K. following the Brexit, and another that would grant Parliament a meaningful say in the final deal.
The House of Commons rejected both of these amendments, and following this decisive move, the House of Lords opted to approve the Brexit bill without the added provisions. A few days after the bill received approval from both the upper and lower house, the legislation received Royal Assent from the Queen.
On March 20, 2017, the British government announced plans to formally notify the EU of its intention to leave the 28-nation consortium on March 29, 2017.
From the beginning, the Brexit initiative has come with significant uncertainty. It's unknown exactly how it will play out, including what access the U.K. will have to the single market and how much the nation will allow for free movement.
Amid this uncertainty, the British pound has lost value relative to both the U.S. dollar and the euro since voters approved the Brexit referendum.
However, the nation's future status in Europe appears to have become more certain now that the government has announced its plans to formally trigger Article 50.
Read more about if a Brexit will actually happen.
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