U.K. lawmakers rejected Prime Minister Theresa May's Brexit deal with the European Union in a 391-242 vote, paving the way for votes on a no-deal Brexit and potentially on a delayed departure from the bloc.
Sterling was down 0.70% against the U.S. dollar right before the vote results were announced, and briefly pared losses after the vote to trade 0.33% lower. It edged further lower around 4:30 p.m. ET to the pre-vote level.
The latest Brexit deal was "the best and indeed the only deal available," May said immediately after the vote, reiterating that leaving the EU with a deal is "by far the best outcome."
May's defeat was widely expected, especially after U.K. Attorney General Geoffrey Cox said last-minute changes to her Brexit deal only reduced, and not eliminated, the risk that Britain could be indefinitely tied up with the Irish backstop solution.
With May's revised deal rejected, lawmakers will decide March 13 whether the U.K. should crash out of the EU without a divorce deal, in what will be a free vote for Tories. If that vote fails, they will decide March 14 whether Brexit should be extended beyond the current March 29 deadline.
With little chance of the House of Commons voting for a no-deal Brexit, the focus now turns to the vote on delaying the Brexit date, with Parliament likely to vote for an extension of two to three months. However, a no-deal scenario remains the default path forward unless the U.K. and EU can finalize a withdrawal agreement before any new deadline.
"Voting against leaving without a deal and for an extension does not solve the problems we face. The EU will want to know what use we mean to make of such an extension," May said.
An extension request must be backed by "a credible justification" for the EU to consider it, the spokesperson for European Council President Donald Tusk said.
EU chief Brexit negotiator Michel Barnier and Tusk's spokesperson said that today's vote has further increased the risk of a no-deal Brexit, adding that the current impasse can only be solved in the U.K.
The spokesperson for Tusk said "it is difficult to see what more we can do" after all that the EU has done to reach an agreement.
The government will lay out its no-deal Brexit policies March 13, including the U.K.'s approach to tariffs and the Irish border, May said.
The backstop is designed to prevent a hard border between the Republic of Ireland and the U.K.'s Northern Ireland after Brexit. British lawmakers rejected May's prior Brexit deal in January by a record 230 votes.
May said March 11 that London and Brussels agreed to a "joint instrument with comparable legal weight" to the withdrawal agreement that prohibits the EU from applying the Irish backstop indefinitely. The U.K. will also make a unilateral declaration allowing it to "dis-apply" the backstop, if ever put into use, in case talks on future EU-U.K. ties collapse, according to the prime minister.
But in his legal advice, Cox said the U.K. would still have "no internationally lawful means of exiting" the backstop, dashing May's hopes of winning parliamentary support.