Trick or treat? UK's Brexit deadline extended to Halloween 2019

11 Apr 2019

Philip Shaw

Investec Economics, UK

After a lengthy session that ran to the early hours of the morning, EU leaders agree on a compromise to once again extend the UK's membership of the EU - this time until 31 October.

The EU Council has handed the UK a further extension to its EU membership until Halloween 2019, 31 October, avoiding Britain crashing out without a deal tomorrow.
 
The length of the delay to the leaving date appears to have been a compromise between most EU leaders, who wanted a longer period of a year, and a smaller group of countries, notably France, which was pressing for a shorter deadline. 
 
Could the UK be granted yet another extension beyond October? This is not impossible.
The UK will be able to leave sooner than October if it passes the Withdrawal Agreement (WA) through Parliament, the legal treaty which governs the terms of departure and which includes the backstop arrangements on the island of Ireland. In theory it is possible that Britain will be able to avoid taking part in the elections to the European Parliament on 23 May. To do this it needs pass the WA before this date. But this looks like an outside bet to say the least. Indeed it looks very likely that Britain will have to participate, a political embarrassment which PM Theresa was keen to avoid.
 
Could the UK be granted yet another extension beyond October? This is not impossible. Dutch PM Mark Rutte remarked after the Summit that it would be difficult to shift the date back again. However EU Council president Donald Tusk observed wryly that he was too old to ‘exclude another scenario’.
 
Donald Tusk

This extension is as flexible as I expected, and a little bit shorter than I expected, but it's still enough to find the best possible solution.

Donald Tusk, European Council President

Tackling the House of Commons

Theresa May has failed in her three attempts to push the WA through Westminster, twice as her complete package including the Political Declaration on the future relationship, and most recently on its own. The last attempt, on 29 March, came the closest, with a still hefty defeat of 58 in the House of Commons.
 
Accordingly some sort of political cohabitation seems necessary to force a deal through and talks between the Conservatives and Labour will resume today. The most likely direction is to explore a customs union. Indeed in the last set of indicative votes in the Commons, this option was defeated by just three votes, suggesting that it stands some chance of gaining a majority in the House.
 
However while the broad concept may gather enough support, the detail may prove troublesome. In particular if the specifics still mean that regulatory checks are required at the UK/EU border, this could result in the Irish backstop needing to be triggered.
 

Looking forward

The PM will address the Commons today to update MPs on events. Having avoided a ‘no deal’ Brexit at the end of this week, the Commons will now go into recess until 23 April. This will no doubt be greeted favourably by MPs, who can now go off on their Easter holidays. It will certainly provide relief to everyone else who will enjoy a break from endless Brexit debates in the Commons. 
 
One final point concerns monetary policy. Our forecast has been that the MPC will raise the Bank rate in August this year, given a moderate pace of economic growth, a tightening labour market and rising wage pressure. However a 31 October Brexit date gives rise to the likelihood of economic uncertainty dissuading members from taking action over the summer. We are putting our call under review.

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