Amid tensions with the European Union (EU), the U.K. may exit, or "Brexit," the 28-nation partnership. British citizens voted on the possibility in a referendum on 23 June 2016 that could help set the European nation's political and economic direction for years to come.
In the time leading up to the referendum, representatives of Britain's businesses have provided warnings, and government entities have prepared for the fallout that the Brexit could cause. In February 2016, 200 business leaders wrote a letter to The Times, voicing their support for the U.K. staying in the EU and cautioning that leaving the partnership "would deter investment, threaten jobs and put the economy at risk. Britain will be stronger, safer and better off remaining a member of the EU." They also stated that "Business needs unrestricted access to the European market of 500 million people in order to continue to grow, invest and create jobs."
In preparation for Britain's potential exit from the 28-nation partnership, the Bank of England revealed plans to supply the nation's banks with substantial capital in an attempt to manage the risk of these financial institutions suffering bank runs. Specifically, it announced that commercial banks would have three separate opportunities to borrow money both before and after the June referendum.
While certain business leaders and government officials have provided ominous warnings about the outcome of the Brexit, Culture Secretary John Whittingdale has helped emphasize the potential implications of focusing too much on the negative consequences that could ensue.
Whittingdale specifically spoke to Cameron's warnings about the economic fallout of the U.K. leaving the EU, noting that exaggerating such a situation could potentially cause investors to overreact. He communicated his point of view to reporters on 8 March 2016, stating that "telling people that Armageddon would follow is both wrong and dangerous, if then Britain did decide to leave." He added, "People may react on the basis that this is going to cause these economic shocks."
History Of UK In EU
The U.K. joined the European Economic Community (EEC), the organiszation that eventually became the EU, in 1973. The EEC, which was formed in an attempt to create a common market, initially rejected the U.K.'s application. French President Charles De Gaulle vetoed the nation's application to join the EEC in 1963. De Gaulle's move not only prevented the U.K. from becoming part of the union, but also Denmark and Ireland.
In 1972, these nations signed an accession treaty, which was then voted on through referendums in the countries. Voters in Ireland and Denmark both approved the treaty, but Norwegians rejected it. The U.K. waited until 1975 to hold a referendum on the matter.
More than a decade later, in 1993, the EU was created when the Treaty on European Union (TEU) entered into force. TEU, also known as the Maastricht Treaty, was created during the Maastricht Summit in December 1991.
During that event, attendees negotiated the treaty, a process that was drawn-out and difficult. Once TEU was created, some member nations struggled to approve it. The agreement failed to pass a Danish referendum, which brought TEU back to the drawing board. However, the treaty obtained the needed votes after undergoing some revisions. France's referendum just barely approved the agreement.
British Parliament approved the treaty, but the lawmakers of this legislative body only did so after Prime Minister John Major threatened to both resign and disband the legislative body if the lawmakers in the House of Commons refused to vote for TEU.
After facing these difficulties, the agreement was finally signed in February 1992.
Once TEU was implemented, the citizens of the 12 member nations received European citizenship. With that, they were granted free passage throughout the union, where they had the right to live in any member nation and also vote in its elections.
Cameron has valiantly negotiated with the other 27 members of the EU in an attempt to secure better terms for the U.K. These nations greatly value the British presence in the EU, and this mindset is illustrated by their willingness to discuss a wide range of matters.
After participating in negotiations that took place in Brussels in February 2016, Cameron secured several concessions from the EU. One major point of contention in the Brexit debate was how much ability members of the 19-nation eurozone would have to create regulations for outside countries.
Cameron has stated before that he wanted to prevent eurozone countries from being able to draft regulations for nations outside the consortium, and after the latest round of negotiations, he made some progress in this area.
Pursuant to a new agreement, those who oppose proposed eurozone laws would be able to slow them down by compelling EU leaders to discuss said proposals. While nations outside the Eurozone would be able to singlehandedly stall a proposed law, they will not be able to stop it, as they lack veto power.
Another victory came in the form of reduced benefits going to children who live in the U.K., but also have parents working in the nation. This subject managed to provoke intense disagreement at Brussels. Child support payments going to children outside the U.K. would be indexed to the cost of living under EU legislation.
After winning these concessions, Cameron announced that he had secured enough sovereignty for the U.K. to recommend that the nation remain a part of the eurozone. He said that because of the new agreement, "Britain will be permanently out of ever-closer union — never part of a European super-state."
In addition, he revealed plans to speak with members of his cabinet and encourage them to campaign for Britain to remain in the EU. However, several cabinet members went in a different direction, forming a "gang of six" in February 2016 and publicly declaring that they backed the Brexit. They made this move right after Cameron announced the date of the June referendum.
When Cameron announced the referendum's date, he said that while the members of his cabinet had the right to campaign for or against the Brexit, the voters would decide the nation's fate.
"We are approaching one of the biggest decisions this country will face in our lifetimes: whether to remain in a reformed EU or to leave," he said. "The choice goes to the heart of the kind of country we want to be and the future we want for our children."
On 23 June 2016, voters face a single question: "Should the United Kingdom remain a member of the European Union or leave the European Union?"
In the event that voters approved the Brexit, the U.K. would require two years at a minimum to break away from the EU. However, the nation may need more time to negotiate its new relationship with the countries left in the partnership.
Several prominent figures have given their two cents on the matter, frequently offering notable quotes.
While there is no shortage of opinions on the Brexit, two former U.K. government officials have asserted that both sides of the debate have a tendency to overstate their cases. Vince Cable, who previously served as the nation's Business Secretary, stated in February 2016 that "The world is not going to collapse" should the U.K. exit the EU. He said that the pro-EU side tends to "exaggerate wildly."
Norman Lamont, former chancellor, depicted the "Leave" campaign as having a tendency to oversimplify the benefits the U.K. would receive upon exiting the partnership. He added that if the Brexit does take place, "We won't suddenly find a nirvana with free trade agreements all over the world." In spite of these warnings, many government officials have provided fairly pointed assessments of the situation.
David Cameron: Cameron was very vocal about his point of view, stating that exiting the partnership "is not the right answer" for the U.K.
Boris Johnson: London Mayor Boris Johnson has a different outlook, stating that a Brexit would be "wonderful" and adding that "It would be a huge weight lifted from British business." A large number of major financial services institutions do business in London, which is essentially Europe's capital of finance, and many banks are less than thrilled about having to cope with the stringent regulatory framework imposed by the EU. Boris's decision to support a Brexit has served as a setback for Cameron's efforts to keep the nation in the EU.
[mk_blockquote style="quote-style" font_family="none" text_size="12" align="left"]It would be a huge weight lifted from British business.[/mk_blockquote]
Nigel Farage: Nigel Farage, leader of the UK Independence Party, has succeeded in being a voice for Britons feeling unrest surrounding the immigration issue. He has stated that even if Britons become slightly poorer as a result of the government restricting immigration, that cost is well worth paying if it in turn provides them with more job opportunities.
"If you said to me, would I like to see over the next ten years a further five million people come in to Britain and if that happened we'd all be slightly richer, I'd say, I'd rather we weren't slightly richer, and I'd rather we had communities that were united and where young unemployed British people had a realistic chance of getting a job," he stated in January 2014. "I think the social side of this matters more than pure market economics."
Jeremy Corbyn: Jeremy Corbyn, Leader of the Labour Party, has thrown his support behind the "Remain" campaign, but he has firmly stated that he is not on the same page as Cameron. In February 2016, Corbyn spoke out against the deal Cameron negotiated with other EU nations to reduce the in-work benefits provided to migrants. Corbyn specifically cited comments made by Michael Gove, justice secretary, which pointed out that the aforementioned deal currently stands on shaky legal ground.
"We are not on the same side of the argument. He wants a free market Europe. He has negotiated what he believes is some kind of deal over welfare and the ever closer union, which is apparently legally questionable, according to Michael Gove," said Corbyn.
[mk_blockquote style="quote-style" font_family="none" text_size="12" align="left"]I want to see a Europe that is about protecting our environment and ensuring we have sustainable industries across Europe such as the steel industry and high levels of jobs and social protection across Europe. His agenda is the very opposite.[/mk_blockquote]
Alan Johnson: Alan Johnson, who previously served as Home Secretary, returned to politics to head up "Labour In," which represents the Labour Party's efforts to maintain the U.K.'s continued inclusion in the EU. He emphasized how important this matter is to him, saying, "I'm as much on the frontline as I want to be, and it's an issue I really care about."
Johnson commented on those in the pro-Brexit camp, elaborating on what he believes are their true intentions. "The people who back the Leave campaign, many of them want Britain as a kind of offshore, free-market, race-to-the-bottom, anything-goes country. They have a problem with rights and protections for workers. But they don't say it. Maybe we'll drag it out of them."
Stuart Rose: Stuart Rose, head of the "Stronger In" campaign, helped rally the heads of many large businesses to his cause. In February 2016, the top brass of 36 FTSE 100 companies signed a letter to The Times articulating their support of staying in the EU. His campaign also attracted significant donations.
"We have had contributions from big business, from financial services businesses, from medium-sized businesses and from, dare I put it this way, the man in the street," said Rose. "As Tesco would say, without being too trite, every little helps."
In addition to securing the backing of many British business interests, Rose also admitted that a Brexit could help place upward pressure on the wages of low-skilled workers, a development which he stated might not necessarily be positive. Rose also spoke to immigration concerns, saying that the U.K. shouldn't "shut the door" on people looking to enter the nation.
"That is the cost of being in the EU. We have free movement across borders. We have people coming here, we have people who live in Spain and Portugal and France and whatever else," he said. "At the moment we are seeing one-way traffic because our economy is growing and the European economy has had a very tough time. There will probably be a point in five or 10 years' time when it goes the other way and we will want to go the other way and we will all want to work in Europe."
Nicola Sturgeon: Nicola Sturgeon, First Minister of Scotland, has stated that the Scottish National Party (SNP) plans to campaign for the U.K. to remain in the EU. She has insisted that she wants the European nation to remain part of the partnership in spite of a 2016 poll indicating that a Brexit might help further her push for Scottish independence. However, should the U.K. leave the EU, she has stated that Scotland would be better off remaining in the partnership.
"I don't think it benefits Scotland to have Scotland taken out of the EU. And even if Scotland was independent I don't think it benefits Scotland to have England that would be our closest neighbour out of the EU," said Sturgeon. "It's a statement of the obvious there would be a very strong feeling in Scotland if we do find ourselves in a situation where we have voted to stay in but because of votes elsewhere in the UK we find ourselves taken out. I hope that doesn't happen and I will be campaigning to try to make sure that doesn't happen."
Nigel Lawson: Nigel Lawson, former Chancellor of the Exchequer, became the Chairman of Vote Leave in February 2016. At the time, Vote Leave was competing with Leave.EU to achieve the status of the U.K.'s official group for those supporting a Brexit.
Lawson later wrote in the Telegraph that the U.K. was suffering as a result of its membership in the EU, a situation that seemed more and more troubling during this role as Chancellor.
He stated that while holding that role, "I became increasingly aware that, in economic terms, membership of the EU did us more harm than good."
Implications Of A Brexit
A wide range of government officials, market experts and companies have weighed in on the potential implications of the U.K. leaving the EU. Numerous variables, including the economy, jobs, investment and immigration, have been mentioned. This piece will delve into some of the more popular areas.
The Broader Economy: While some have asserted the British economy would receive a net benefit stemming from a Brexit, others have argued the event would create a net loss. Those who believe the event would serve as a boon have cited the newfound freedom the U.K. would have to draft its regulations. In contrast, opponents of this point of view have asserted that both investment and trade would suffer, hindering the British economy.
The Centre for European Reform, a pro-European think tank, created a commission to discuss the potential Brexit. In so doing, it released a report asserting that many of the criticisms brought against EU-U.K. integration are inaccurate, and that a Brexit could both lower tax revenues by eliminating the contributions of migrants and also cut regional funding.
Alternatively, economist Tim Congdon released a report estimating that EU membership costs the U.K. roughly 11.5% of its GDP because the nation is weighed down by cumbersome regulations. Congdon asserted that small- and medium-sized businesses in particular suffer because of the cost associated with such frameworks.
The U.K. treasury took a different tack in May, releasing a report saying the nation's economy would suffer an "immediate and profound shock" should the referendum result in a "leave" vote. "Within two years the size of our economy—our GDP—would be at least 3% smaller as a result of leaving the EU, and it could be as much as 6% smaller," Osborne told workers who had gathered in late May. "We'd have a year of negative growth—that's a recession."
The report credited the profound shock to businesses and households responding to uncertainty by altering their spending. Osborne presented the findings while side by side with Cameron, stating that a Brexit could spell recession.
According to the report, leaving the EU would increase unemployment, lower GDP and cut real wages. Past that, public borrowing would rise and inflation would increase.
While this may all make a Brexit seem ominous, several critics have claimed its findings are either exaggerated or leave out key points. Government officials may cut interest rates or employ other policy levels to combat the negative effects of a Brexit, but the report fails to acknowledge these potential approaches, economists at Capital Economics recently wrote in a note to clients.
Trade: By leaving the EU, the U.K. would need to renegotiate trade agreements. This could be challenging when creating deals with major nations such as the U.S. that currently have an agreement in place with the 28-nation partnership.
Brexit opponents have argued that such an event would bar the U.K. from accessing markets around the world that have previously brokered trading accords with the EU. These opponents have also warned that the U.K. will lose access to trading with the remaining members of the EU should it decide to leave the 28-nation partnership.
Farage has offered a different point of view, asserting that leaving the EU will allow the nation to focus on emerging markets that are enjoying robust growth.
Opinions aside, government figures have shown that exports to the 27 non-British members of the EU are associated with 12.6% of British economic output. Alternatively, the exports flowing from those 27 nations to the U.K. account for only 3.1% of the EU's output.
Immigration: On a net basis, the U.K. has been accepting far more migrants than its official government target. The nation's number of net immigrants was 323,000 during the year through September 2015, a figure more than 200% higher than the government target.
Many have contended that the current EU immigration agreements cause the U.K. to give favourable treatment to low-skilled, European immigrants at the expense of higher-skilled workers who are not EU citizens. There have also been concerns that the influx of these immigrant workers has worsened job conditions for many who do unskilled labor.
While EU immigration policies have been unpopular at times, some argue that a Brexit may not be the best solution. More specifically, leaving the EU may place the U.K. on uncertain ground when it comes to brokering agreements with the 27 nations left in the partnership.
Implications For Scotland
A Brexit could trigger decisive action on the part of Scotland. More specifically, Sturgeon has claimed on more than one occasion that should the U.K. vote to leave the 28-nation partnership and Scotland vote to stay, the Scottish might hold another independence referendum. In March 2016, a poll revealed that if Scotland had to leave the EU unwillingly, most Scots would vote for the nation to become independent.
Stewart Hosie, a member of Parliament, articulated Scotland's commitment to remaining part of the EU when he said, "No matter what England does, we are staying in."
Sturgeon also spoke to Scotland's insistence on remaining part of the 28-nation partnership during a speech she gave in June 2015. "If Scotland were to be taken out of the EU despite having voted to remain, it would provoke a strong backlash," she said. "Bluntly I believe the groundswell of anger […] could produce a clamour for another referendum that could well be unstoppable."
GBP Vs. EUR
The GBP/EUR pair fluctuated in a range spanning 1.15 to 1.45 between 1 July 2012, right after Cameron publicly rejected the idea of holding an "in or out" referendum during a Brussels summit, and mid-March 2016 (as of this writing). The low point was reached in March 2013, while the high was reached in July 2015.
Late in June 2012, Cameron rejected the possibility of holding a referendum that could permit a Brexit, stating that the U.K.'s membership in the EU comes with benefits despite the difficulties. On 1 July 2012, the GBP/EUR currency pair closed at 1.2533. By 4 March 2013, the pair fell to a closing value of 1.1461.
During late January 2013, Cameron pledged that if the Conservatives won the next general election, British voters would have the opportunity to participate in an "in or out" referendum. At the time, the prime minister said that he wanted to work to create a better relationship between the U.K. and the EU before giving British voters the ability to approve a Brexit. On 21 January 2013, the GBP/EUR closed at 1.1805.
In November 2015, Cameron shed further light on exactly how he wanted to renegotiate the U.K.'s place in the EU. He wrote a letter to Donald Tusk, European Council President, on 10 November, outlining four basic goals: he wanted to reign in immigrants' ability to access in-work tax benefits like tax credits, protect the Single Market, scale back regulation in order to improve competitiveness and make sure the U.K. is not a part of "ever-closer union."
Lawson criticised the proposed reforms, asserting that they were "disappointingly unambitious." On 9 November 2015, the GBP/EUR closed at 1.4087. The currency pair rose to 1.4253 one week later, close to the annual high of 1.4342 reached in July. In contrast, the pair closed at 1.2791 on 5 January 2015.
During a speech provided to the U.K. House of Commons on 22 February 2016, Cameron provided some detail on the mechanism of the nation leaving the EU. Should the majority of voters in the referendum vote to leave the 28-nation partnership, it would trigger Article 50 of the Lisbon Treaty, which would cause the U.K. to begin the exit process.
This would involve "a two-year time period to negotiate the arrangements for exit." Cameron emphasized that once the U.K. holds a referendum in which the voters opt to exit the 28-nation partnership, this will not set the stage for further negotiations.
On that day, the currency pair fell to as little as 1.2855, the low for 2016.
Chronology Of Events
Cameron Rejects Referendum Request: A group of close to 100 Tory Members of Parliament requested a referendum in June 2012, but Cameron denied that request, announcing his decision at the end of a Brussels Summit.
Referendum Opportunity Pledged: Cameron changed his tone in January 2013, asserting that the British voters need to "have their say," but that he wanted to sit down at the bargaining table with member nations of the EU first. He specifically stated that if the Conservatives won the next election, he would hold a referendum before 2018.
Cameron Outlines Brexit Process: Cameron outlined the Brexit process on 22 February 2016, while speaking with the U.K. House of Commons. He stated that once the nation started the process of leaving the 28-nation consortium, it would have two years to renegotiate new agreements with the remaining members of the EU.
Brexit Polls: Polls monitoring voter sentiment have provided mixed results, and while many of these surveys have involved specific groups, the Global Trades Association conducted a poll involving more than 500 respondents in March 2016. Roughly 85% of participants in this survey, which was conducted mid-March 2016, believed that the Brexit would take place. Only 15% thought the nation would remain in the EU.
A separate poll, which ORB conducted for The Telegraph in April, showed a very slim majority of 51% backing the Remain campaign, while 43% supported the Leave initiative. These figures represented a two-point decrease for the former campaign and a corresponding increase for the latter.
John Curtice, Professor of Politics at the University of Strathclyde, has created the "What UK Thinks: EU Poll of Polls," which is based on the six latest polls regarding the Brexit. Every time a new poll comes out, the Poll of Polls averages it with the five preceding surveys.
At the time of report on 23 May 2016, the latest figures include information gathered between 11 May and 17 May. They show that 54% of voters were in favour of the U.K. staying in the EU, while 46% had the opposite view.
However, the exact same poll showed a 50-50 split between pro-Leave and pro-Stay voters when taken in early April. While many polls have been taken, Citi emphasized that voter turnout might be "the most crucial variable" in the referendum's outcome. Analysts working for the financial institution said in a note that "lower turnout, such as below 50 percent, would favour the more motivated-to-vote Leave camp." The referendum requires only an absolute majority for approval, they stressed.
Potential Referendum Delay: Expatriates (expats) took legal action in The High Court of England and Wales in March 2016 in an effort to get their voting rights reinstated before the Brexit referendum takes place. By doing so, they intended to compel the U.K. government to take action on the matter.
As many as 4 million British expats are unable to take part in the country's elections because of the "15-year rule," which bans Britons who have lived outside the U.K. for more than 15 years from joining the electoral register. The expats planned to issue urgent judicial review proceedings in the High Court, contending that the EU Referendum Act violates the rights they have under European law.
Should they succeed in having the names of eligible expats added to the electoral register, the process of listing these individuals could postpone the referendum. As for how adding these voters to the list could affect the final outcome of the referendum, it is difficult to tell. Pollsters have done few surveys on how expats would vote in a Brexit referendum.
At any rate, a U.K. exit from the EU could affect the welfare of British expats, and Harry Shindler MBE, who is named in the legal action before the High Court, has contended that regardless of how long they have lived outside the country, British expats should be involved in decisions that affect their health care, pensions and mobility.
Shindler, who has repeatedly advocated for the rights of Britons living outside the U.K., vowed to give expats voting rights in the referendum no matter what. "We will take any steps necessary to get the vote," he said.
"It is quite undemocratic and we have tried everything – I've written to the Prime Minister, it's been raised in the House of Commons, to no avail," he continued. "The only thing to do now is go to a court of law."
On 20 April 2016, the High Court's Justice Lloyd Jones and Justice Nicholas Blake heard arguments provided by Aidan O'Neill QC, who represented Shindler and Jacquelyn MacLennan, a British lawyer who has resided in Belgium for more than 25 years. O'Neill contended that British expats would need to relocate to the U.K. if they wanted to vote in the upcoming Brexit referendum. He stated that as a result, these potential voters were "on the horns of an impossible dilemma."
Within a week of hearing this argument, Justice Jones rejected the claim brought forth by Shindler and MacLennan, ruling that the EU Referendum Bill's language did not violate the rights that expats had under EU law. After receiving this decision, Shindler and MacLennan made good on their prior pledge to appeal the case if it lost. However, the Court of Appeal refused to overturn the High Court's ruling.
The case was once again appealed, this time going before the nation's Supreme Court. The U.K.'s highest court sided with previous rulings, declaring that the European nation had the ability to select its own time frame during which expats could vote.
The Vote Goes On
After the legal challenge to the referendum exhausted its options, the referendum vote took place on 23 June. While many polls had shown the Bremain campaign having more support than the Brexit campaign, the Brexit initiative won the contest by securing 51.9% of the votes. Nearly three-quarters of the electorate cast votes, as Jenny Watson, chief counting officer for the referendum, announced that out of an electorate of 46.5 million, more than 33.5 million verified ballots were cast.
After the Leave campaign attained 52% of the referendum's votes, Cameron announced early on 24 June that he was resigning his post as prime minister. Cameron said that at least for the time being, agreements affecting trade and travel would remain unchanged.
Financial markets reacted strongly to the news, experiencing sharp fluctuations in currencies, commodities and equities.
The British pound fell to its lowest in more than 30 years, several equity indices experienced notable declines and gold prices surged close to 5%.
The Brexit's impact on global trade was felt immediately, as Oxford Economics predicted the U.K. will probably not renegotiate its trade deals before it leaves the EU, which could be up to two years after the Brexit vote. As a result, the U.K. may need to follow Word Trade Organisation rules after it officially exits the EU.
A perfect example of a trade agreement that may be hindered because of the Brexit is an agreement that Japan and the U.K. have been negotiating since 2013. A member of Japan's cabinet stated the two nations will have a hard time finalising this agreement in 2016.
High Court Ruling
On 3 November, the British High Court ruled that the U.K. government lacks the authority to trigger Article 50 without first obtaining Parliament's approval. The government argued that the executive powers it had received under royal prerogative gave it the ability to trigger Article 50 on behalf of the cabinet and therefore inform the EU that it was starting the exit process. These prerogative powers are left over from the days when monarchs retained absolute power.
However, claimants rejected this position, arguing that parliament alone had the ability to trigger Article 50. They claimed that while the referendum did reveal a vote to leave the EU, this vote was only consultative. The government announced that it will appeal the decision, and the Supreme Court has revealed that it has made time to review the legal matter starting 7 December. Every one of the court's 11 justices in position will be involved in this hearing.
On 18 November, the Supreme Court announced that the chief lawyers of Scotland and Wales could participate in the upcoming government appeal. The British government has stated that Holyrood lacks the authority to have a direct say in triggering Article 50, and May has stated that things are on track for the U.K. to formally start exiting the EU before April 2017.
"We stand ready to trigger Article 50 by the end of March 2017, and I want to see this as a smooth process, an orderly process, working towards a solution that's in the interests of both the UK and also in the interests of our European partners," May said during a press briefing with German Chancellor Angela Merkel.
However, the Supreme Court decision to allow the participation of Scottish and Welsh lawyers opens up the possibility of the Scottish parliament debating the matter. Sturgeon has stated both the impact that triggering Article 50 could have on Scotland, as well as the importance of having the nation's parliament weigh in.
"The Scottish government is clear that triggering Article 50 will directly affect devolved interests and rights in Scotland," said Sturgeon. "And triggering Article 50 will inevitably deprive Scottish people and Scottish businesses of rights and freedoms which they currently enjoy."
Supreme Court Trial
On 5 December, the British Supreme Court began hearing the case regarding the government's ability to trigger Article 50 without first consulting Parliament. Attorney General Jeremy Wright argued the government's case, stating that the royal prerogative powers, which the government wants to use to trigger Article 50, were a "constitutional necessity" and a "fundamental pillar of our constitution as a sovereign state."
Wright further asserted that previously, Parliament had the chance to constrain the government's authority to trigger Article 50, but had decided against such a move. He also stated that Britons had voted on the referendum with the "clear expectation" that the government would end up actualising the chosen outcome.
After Wright made his arguments, government lawyer James Eadie assumed control of the case, stating that when Parliament enacted laws enabling the referendum, it is quite unlikely the legislative body was simply "reserving to itself the right to decide whether to leave or not as it saw fit."
Even before the Supreme Court provided its ruling, it was revealed that amid their concerns about the case's outcome, British cabinet ministers had created at least two separate versions of legislation that the government could use should the court decide that the input of Parliament was needed before triggering Article 50.
The concerns of these ministers proved valid, as the Supreme Court ruled 24 January that before triggering Article 50, the government needed to hold a vote in Parliament. The Supreme Court justices voted 8 to 3 in favour of upholding the decision of the lower court, explaining that because the legal ramifications of Brexit would be so significant, any such process would need to be initiated by an act of Parliament.
The Brexit initiative took its first step toward obtaining parliamentary approval when members of the House of Commons voted on 1 February 2017 to let the government trigger Article 50. Members of this legislative body voted 498 to 114 to approve the proposed legislation.
While this landslide victory may have made the bill's passage certain, the legislation still needed to overcome additional hurdles before becoming law. For instance, the bill was scheduled to be examined during the committee stage.
In addition, final approval would require the bill to obtain favourable votes in the House of Lords, a legislative body with many members who oppose Brexit. However, following the vote in February, most analysts predicted that Parliament would approve the bill in time to let May begin Brexit negotiations by the end of March.
The Brexit initiative took another big step forward on 8 February 2017, after it cleared the committee stage with its language intact. This legislation was able to obtain favourable votes from 494 members of parliament—compared to 122 against—following a seven-hour debate regarding amendments took place in the legislative body.
During the session, the House of Commons rejected nine proposed amendments, including one that would have required the U.K. to hold another Brexit referendum before leaving the EU. This particular clause was shot down by 307 members of Parliament who voted against it, with only 37 voting in support.
The unamended Brexit bill was introduced in the House of Lords on 8 February, where it quickly encountered some obstacles. Speculation circulated that by adding amendments to this Brexit bill, the legislative body could prevent May from triggering Article 50 before 31 March, thwarting her goal and spurring significant political conflict.
While the House of Commons basically rubber stamped May's bill, the upper house has taken a more activist approach. "Our function is to scrutinise this properly, not simply to toe the line."
The House of Lords ended up adding two separate amendments to the bill, with one of them giving parliament the ability to veto the final Brexit agreement. The House of Commons rejected both of these amendments with notable majorities, and the House of Lords approved the resulting legislation, clearing the way for May to trigger article 50.
In the coming days, the queen gave this approval, providing May with everything she needed to begin negotiating with the EU.
On 29 March, May made good on her promise. Tim Barrow, permanent representative of the U.K. to the EU, delivered a letter of notification to Tusk in Brussels. This formally began the nation's departure from the 28-nation consortium.
May took a diplomatic approach in the letter, stating: "We should engage with one another constructively and respectfully, in a spirit of sincere cooperation."
Call For Snap Election
Following her taking the steps required to officially trigger Article 50, May announced that she wanted to hold snap elections for Parliament, a move that the House of Commons quickly approved. Lawmakers' decision to vote in favour of May's proposal formally scheduled general elections for 8 June.
This timeline gave members of Parliament six weeks to campaign for reelection.
While May has repeatedly stated in the past that she didn't want to hold early elections, the British head of state has claimed that certain government officials have been making efforts to interfere with her plans. By requesting these snap elections, May sought to achieve a stronger position for her Conservative Party, which held 330 of 650 seats in Parliament at the time.
May failed in her efforts to secure a better position for the Conservative Party, as the party lost its majority because of the election, ending up with 318 of the 650 seats in Parliament. The British pound experienced notable price movements surrounding the election, as it fell from US$1.2963 on 7 June to US$1.267 on 12 June.
Later that month, the Conservative party brokered an agreement with Northern Ireland's Democratic Unionist Party, thereby ensuring a slim majority in the House of Commons.
After the two parties struck this deal on 26 June, the British pound reacted favourably. It climbed from US$1.2724 late on 26 June to US$1.3175, the highest in close to a year, on 30 June.
Brexit Negotiations Begin (Summer 2017)
U.K. Brexit Secretary David Davis travelled to Brussels on 19 June 2017 to begin negotiations with key government officials including Michel Barnier, the EU's chief Brexit negotiator.
The participants went over some practical matters, including when meetings would take place. For the first phase of negotiations, they scheduled these meetings to occur in four-week cycles with dates set through October 2017.
Further, they determined the specific subjects that the first phase of negotiations will cover, which including the financial settlement associated with Brexit, citizen's rights, the border between Ireland and Northern Ireland, and other issues related to the separation of the U.K. and the EU. Many issues seemed up in the air, and Barnier noted how important it would be to clarify key matters. "We must lift the uncertainty caused by Brexit," said Barnier.
One major source of this uncertainty was Northern Ireland's status going forward, specifically whether the jurisdiction, a U.K. province, would remain a part of the single market following Brexit. During this first meeting, Barnier stated that the first phase of negotiations would center on how Brexit would affect Northern Ireland.
Later that month, the Conservative Party brokered an agreement with Northern Ireland's Democratic Unionist Party, thereby ensuring a slim majority in the House of Commons. After the two parties struck this deal on 26 June, the pound reacted favourably. It climbed from US$1.2724 late on 26 June to US$1.3175, the highest in close to a year, on 30 June.
The negotiators held a second round of talks between 17 and 20 July, during which they focused on obtaining a better understanding of each other's positions. The negotiators discussed how trade arrangements would work following Brexit, and what the court system would look like after this event, including the role of the European Court of Justice.
The British pound experienced some modest upside following this meeting, as it climbed from US$1.2966 on 20 June to US$1.3227 on 2 August.
The third round of Brexit negotiations began on 28 August, with Barnier expressing his concerns about these talks taking place in a timely manner. For his part, Davis requested flexibility. European leaders had taken a hard stance on the order of the talks, insisting that the U.K. provide positions on three matters—the Irish border, the financial settlement and the right of EU citizens—before discussing trade.
However, representatives of France and other European nations indicated that they are willing to begin discussing the post-Brexit trade situation as early as October. France proposed an agreement whereby the U.K. would accept EU law and provide funds for the EU budget in exchange for a three-year transitional deal.
These updates, which were announced 28 August 2017, caused little change in the value of the pound. During the day, the pound fluctuated between US$1.292 and US$1.294.
May's Florence Speech (September 2017)
May gave a speech in Florence on 22 September 2017 that offered some proposals for U.K. policies going forward, and she requested that negotiations regarding the U.K.-Brexit split resume. She proposed allowing the U.K. to be a part of the single market for two years after Brexit takes place.
May appealed to simplicity, stating that "people, businesses and public services should only have to plan for one set of changes in the relationship between the UK and the EU." She added, "During the implementation period, access to one another's markets should continue on current terms."
May addressed freedom of movement as well, proposing that as long as EU migrants register with the U.K., they will be able to live and work in the nation. She also mentioned the financial contribution that the U.K. would make to the EU: "I do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave."((Retrieved 22 September 2017 https://www.nytimes.com/2017/09/22/world/europe/florence-theresa-may-speech-brexit.html))
Some EU officials responded to these proposals, with Barnier requesting further information. However, these proposals could be a step in the right direction, as the EU has said that "sufficient progress" must be made on the protection of expatriate rights, the financial settlement and the land border with Ireland before speaking further about trading arrangements.
The pound suffered weakness relative to both the U.S. dollar and the euro during May's speech. The pound then climbed relative to the U.S. dollar, paring its losses significantly.
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Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…