Theresa May’s Second Big Loss

After PM Theresa May’s defeat yesterday on the new Brexit deal, the House of Commons is voting tonight on whether it can support leaving the EU without a deal. We maintain our view that the House of Commons will vote to reject a no deal Brexit and instead tomorrow vote in favour of an extension. Also look out for responses from EU leaders and politicians.

As we had expected, PM Theresa May suffered another defeat on her Brexit deal. Still, the defeat was smaller than the first time around (149 versus 230 last time) and 40 Conservative MPs switched, including the former Brexit secretary David Davis .

While we expect the House of Commons to support an extension, the EU27 needs to grant it unanimously. While EU leaders and EU Council President Donald Tusk have said they want good explanations for an extension, we think a short extension to mid-May (before the European elections) is quite likely. EU leaders are clearly annoyed by Brexit, as they have other issues to deal with, but it is probably more problematic for the UK to kick the can further down the road. However, given the size of May’s defeat, the EU leaders will discuss whether they prefer to offer a long extension.

As most expect an extension and think at some point there will be a third attempt to get May’s deal through, it was not a big cost for MPs to vote against her deal again . During the day, however, we think it was clear that the Brexiteers are under increasing pressure to deliver Brexit, as the alternative is a softer Brexit (or a reversal), not a cleaner/harder one. Besides David Davis supporting the deal, prominent Brexiteers such as Jacob Rees-Mogg also seem to be softer. This is also why our base case remains that the deal will pass eventually, but of course uncertainty is high.

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