The triggering on 29 March of Article 50 of the European Union's Lisbon Treaty starts formal procedures for the United Kingdom to leave the European Union in 2019.
Outlook and implications | ?Following the triggering of Article 50 of the European Union's Lisbon Treaty, formal Brexit talks between the United Kingdom and the European Union are unlikely to start before May/June 2017. ?The UK government will face several key domestic challenges during negotiations with the prospect of a constitutional crisis triggered by calls for another Scottish referendum on independence alongside the difficult relationship between Westminster and Northern Ireland. ?Externally, the United Kingdom will face resistance from the remaining 27 EU member states, which are likely to make leaving the bloc difficult for the United Kingdom. |
Risks | Policy instability; Government instability |
Sectors or assets | All |
UK prime minister Theresa May signing the Article 50 letter on 28 March, as she prepares to trigger the start of the United Kingdom's formal withdrawal from the European Union.
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On 29 March, the United Kingdom's permanent representative to the European Union, Tim Barrow, is launching formal Brexit procedures by delivering a letter signed by UK prime minister Theresa May to European Council president Donald Tusk. As a result, EU law foresees that the United Kingdom will leave the bloc by end-March 2019. This provides around 18 months for the actual talks to be completed as any form of agreement will have to be ratified by the UK and European parliaments as well as national and some regional assemblies in the remaining 27 member states, a process envisaged to start around October 2018. IHS Markit expects that it will be difficult to accommodate the vast range of different and often opposing priorities of the involved actors. In addition, the European Union is unlikely to yield easily to UK demands and will want to set a precedent to deter other member states from leaving the bloc. Domestically, the UK government is likely to face resistance from the opposition and parliamentary scrutiny later in the negotiation process. However, the largest domestic risks, which could hinder or even derail Brexit talks, are political developments in the devolved regions of Scotland and Northern Ireland.
Looming constitutional crisis threatens progress in talks with EU
The devolved Scottish parliament yesterday (28 March) approved by a 10-vote majority in the 129-member chamber Scottish first minister Nicola Sturgeon's proposal to call a second independence referendum. The vote means that Sturgeon now can formally request consent from the UK government in Westminster to stage a referendum. Sturgeon has repeatedly said in recent weeks that she wants to hold the referendum before the end of the United Kingdom's exit negotiations with the European Union. That would mean a second Scottish independence referendum (colloquially, IndyRef#2) by 29 March 2019.
May has asserted on numerous occasions that she will not agree to a Scottish referendum before the United Kingdom's departure from the European Union. Constitutionally, she is not obliged to assent to the referendum. Both the previous Scottish independence vote in 2014 and the 2016 Brexit referendum took place because of political agreement in Westminster to undertake such popular consultations. In both cases, May's predecessor David Cameron effectively took the risk of accepting a referendum because he was under pressure from specific parts of the electorate and his own centre-right Conservative Party. May is under no such pressure from within the party to hold IndyRef#2 and, in the absence of evidence to the contrary, has argued that there is no clear support for a second referendum in Scotland. Those factors mean that it is currently difficult to see how a majority Scottish National Party (SNP) Scottish Executive – albeit one which also has 54 MPs sitting in the UK Parliament, making it the third largest force there – can force May to accept a referendum before March 2019. However, given the lack of clarity over whether IndyRef#2 actually would deliver an independence vote for Sturgeon in the two-year outlook, the UK prime minister's current intransigence is likely to assist the SNP's independence goal after completion of the Article 50 process by permitting pro-independence groups to claim to Scottish voters that the Westminster government had failed to represent their views.
Brexit talks are also likely to be disrupted by current political instability in Northern Ireland where, as in Scotland, a majority voted to remain part of the European Union. A key challenge for the United Kingdom, the Republic of Ireland, and the European Union will be the future of the currently open border between Northern Ireland and the island's south. In addition, recent devolved assembly elections resulted in a difficult political situation under which Republican and Unionist political forces have failed to form a power-sharing coalition in line with the 1998 Good Friday Agreement. After the deadline for government formation ran out on 27 March, the United Kingdom's Northern Ireland Secretary James Brokenshire allowed a few more weeks for negotiating parties to reach agreement. If this fails, the return of direct rule of Northern Ireland by Westminster is likely. This would result in protracted political instability in the region, a likely resurgence of protests by both Protestant and Catholic communities, and increased violence by militant representatives of both communities.
Outlook and implications
Today's procedures are primarily administrative. They will offer no new indications on the final deal on future relations between the United Kingdom and the European Union. More clarity on initial strategies will be available once the UK government formally submits its Brexit priorities and after other EU member state provide the European Commission with a formal mandate to lead negotiations, which is scheduled to happen at a summit on 29 April. At present, IHS Markit expects the United Kingdom and the European Union eventually to agree on a free trade deal similar to that recently concluded between the bloc and Canada with additional co-operation on defence, fighting international terrorism, and other issues. The first round of negotiations is likely to focus on defining the remaining UK budget contributions to the European Union, clarifying the rights of EU citizens in the United Kingdom and vice-versa, finding a solution for the border between Northern Ireland and the Republic of Ireland, and defining the timeline for phased implementation of Brexit.