Economists from Kings College London said it is unlikely that a market crash will convince MPs to pass the Brexit withdrawal agreement in a second vote.
The withdrawal agreement currently looks unlikely to pass the meaningful vote when it comes to the House of Commons on 11 December, with Tory MPs rebelling, as well as DUP and Labour refusing their support.
Timeline for Brexit
- September 10, 2019
There is speculation that markets will panic if the withdrawal agreement is not passed in that first vote, with the prospect of a no-deal looming closer.
But Kings College London expert on immigration and economics of Brexit Professor Jonathon Portes said that “unless market prices do something really stupid,” the markets are unlikely to persuade MPs to vote positively in a second vote.
During the financial crash in 2008, a US government initiative to bail out the banks known as the Troubled Asset Relief Program (TARP) got through US Congress at a second vote.
The initial rejection of TARP caused an almost 10% fall on Wall Street, which convinced the House to change its mind.
The comparison with the UK and Brexit is a prediction that sterling will fall when the first vote fails, forcing the Commons to change its mind collectively in a second vote.
“We saw this the first time around”
Professor Portes said the market had already fallen since the June 2016 referendum but had not had a significant impact on the politics around Brexit.
He said: “We already know the main impact because we saw this the first time around,” adding that a 5% fall in sterling would cause “no immediate panic, just a change in prices”.
MPs in the House of Commons would need to feel that no-deal is an absolute disaster, he said.
“I don’t see markets panicking and that being a way through.”
He predicted that markets would react smoothly, with the Bank of England already “well prepared”.
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However, there would be a number of firms who would “push the button on contingency plans” if a vote was not passed before Christmas.
Portes added there were many firms that had already started their contingency plans.
The fact that the TARP scenario is already being considered serves to undermine it in this Brexit situation, as the first time failure for the withdrawal agreement bill has already been priced into markets.
A controlled no-deal or smooth exit, or a second referendum are seen as more likely than a chaotic no-deal, which is also keeping markets out of the panic zone.
There are other scenarios that can still play out, including a no-confidence vote in the government, which could lead to a general election and take Brexit plans back to square one.