With Westminster in chaos over Brexit and the Withdrawal Bill facing a huge defeat, Paul Krishnamurty examines the implications for the process and PM and sees how the Exchange markets have reacted...
"Events are leading towards a second referendum. As all other options fall short - changing government, crashing out or ever more fraught negotiations with no end in sight - it will become the least worst option."
The chance of the UK leaving the EU on time, if at all, is falling fast if Betfair markets are a guide. Following a truly remarkable few days in parliament, it is now rated only 44% likely that Brexit be delivered on time - March 29, 2019 - at odds of 2.265/4. Brexit not happening before 2022 also shortened to 3.8514/5 - equivalent to 26% likely.
Grieve amendment places Brexit in real doubt
Having been found in contempt of parliament for the first time ever, the government was forced release their legal advice on Theresa May's Brexit deal. Then, an amendment from Tory backbencher Dominic Grieve gave parliament the ability to broadly dictate the process if the withdrawal bill is defeated, as expected, next Tuesday.
That potentially ruinous outcome for the PM is rated extremely likely at odds of 1.132/15 (88%). The top-rated bands in our market on the number of Ayes point to a defeat of around 200.
What next? In normal times, such a humiliating defeat would destroy a government and certainly a PM. However these are not normal times and it isn't clear that rebel backbenchers are prepared to trigger a no confidence vote - currently rated a 2.47/5 chance to happen in 2018.
Labour will try to force an election and the odds about one in 2019 has come into 2.56/4. As argued a fortnight ago, this is a poor bet given the Tory divisions and fears of Jeremy Corbyn. Nor would it necessarily resolve the impasse.
No deal less likely but still possible
Much commentary has become dismissive of 'No Deal' now that parliament has gained control of the process. Today's Telegraph report that the EU will allow May to extend the Article 50 deadline reinforces that and explains market moves against a timely Brexit.
A delay certainly looks likelier but could still be problematic and a deal - in the short or long-term - far from certain. As it stands, the UK will leave the EU by default next March. To change that will require a Conservative PM to act or parliament to force her hand. May has repeatedly promised there would be no extension and any such move will be toxic for her.
Equally although legal developments suggest the UK can unilaterally revoke A50, realistically that requires agreement with the EU. Previously they've implied the only way extension (beyond merely a few weeks for practical purposes) is acceptable would be alongside a second referendum. Again utterly toxic among Tories - Con Home's latest survey finds 90% of activists opposed.
Norway-style deal rising but also problematic
There is some cross-party support for an alternative 'Norway Plus' option - for which agreement with the EU is plausible. Again, I suspect this is more wishful thinking than detailed planning. Norway involves freedom of movement - May's ultimate red line and the most important driver of Brexit voters - without resolving the long-term issues when the transition period ends.
Few MPs dare say it and even supporters fear the divisive consequences but events are leading towards a second referendum. As all other options fall short - changing government, crashing out or ever more fraught negotiations with no end in sight - a so-called Peoples Vote will become the least worst option.
Not an exact repeat of 2016 - rather a legally binding, as opposed to advisory, choice between Remain and No Deal Brexit, in which case withdrawal would be specified on an imminent date.
It is also the only solution that really suits the EU. They are 27 individual countries, with their own specific interests and priorities. Ideally they prefer the UK to remain and their only real incentive to extending A50 would be if that were still on the table. There is no incentive to extend indefinitely while the Conservative Party sorts itself out or wait for a Labour-led government to conjure up a credible alternative.
May's lifelines to finally expire in the New Year
So where does this leave the PM? Unless the law changes and no deal is no longer a default on 29th March, Brexiters have no reason to sack May. If they tried and failed, she would be secure for a year and their influence fatally diminished. Equally, Cabinet rivals must avoid showing their ambition at a time of national crisis. Better to wait for her to be seen to have, unarguably, failed.
With the clock ticking, her usefulness to either side is time-limited. Jan-Mar 2019 is now the favourite period for Theresa May's Exit Date. I agree. The New Year is the perfect time for rivals and opponents to strike.
A second referendum would be unacceptable to her party and a profound humiliation. Likewise, it is hard to see how she could maintain credibility with her own party going into a new set of negotiations in which the fundamental questions remain unanswered or as yet even explored in detail.
I envisage one of three scenarios. Another In/Out Referendum, a no deal, on time Brexit, or a new Brexiter Tory leader trying to sell the Norway option. Odds of 2.3411/8 about the first are expected to shorten further, while the second drifts. 3.8514/5 about no Brexit before 2022 also appeals because with every day this chaos ensues, staying in will appeal to ever more politicians and voters.
Bet on UK politics here
Number of Ayes for Brexit Bill
Commons Brexit Vote to Pass in 2018
UK to leave EU by 29/03/2019?
EU Referendum before 2020?
Theresa May to face No Confidence Vote in 2018?
Theresa May Exit Date
Year of Next Election