Brexit: prepare for ‘no-deal’, Mercers warns global investors

New prime minister Boris Johnson has dispensed with the practice of his predecessors in assembling a team with “a bit of balance”, says Mercers, to reflect “the different political wings of their party and those considered the best people for the job, regardless of whether those people voted for the leader or not”.

Instead, Johnson has “largely picked people who voted for him and also those who support his policy on Brexit”.

Mercers continued:

“This has resulted in the government becoming the most-right wing it has been in recent times and also the most Eurosceptic ever. This government says it will try to re-negotiate the current deal, but prepare for no-deal and implement no-deal if the renegotiation fails.”

Political priorities

The UK and the European Union (EU) need to agree on a Withdrawal Agreement (WA), which largely deals with withdrawal issues. Additionally, they must separately agree on a Political Declaration (PD) that sets out what both sides see as the likely shape of the future relationship between the UK and the EU.

Mercers explains:

“The passage of the WA and the PD creates the transition period during which the final end relationship will be negotiated (which may or may not follow the PD template) and during which the future economic relationship between the UK and the EU will remain unchanged. If the WA and PD do not pass, then the UK leaves without a deal on 31 October 2019, unless the UK manages to secure an extension to the Article 50 process. Theresa May’s government negotiated and agreed on a WA and a PD (subsequently tweaked) in November 2018.

“The WA also contained a backstop provision in relation to the Northern Irish and Republic of Ireland border. A backstop was agreed in a joint declaration in December 2017 that any agreement must ensure that no physical infrastructure appears on the border to protect the Good Friday Agreement and the peace process. May’s government and the EU agreed in November 2018 that the WA would contain a provision that the backstop would kick in if subsequent negotiations either failed or if the agreement failed to obviate the need for physical infrastructure. This agreement caused huge backlash from MPs in Westminster. That backstop provision would keep Northern Ireland (and/or whole UK) closely aligned with the ROI and thus the EU.

“Under PM May’s leadership, the WA and PD failed to gain the support needed for it to successfully get through Parliament three times. The key sticking point was the Irish backstop which those on the right of the party and the DUP rejected as potentially keeping the UK under the control of the EU. Boris Johnson voted against it twice and once in favour.”

In tomorrow’s follow-up, we outline three Brexit scenarios envisioned by Mercers.

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