A setback for Boris
This week in Westminister Boris Johnson's slim Conservative majority fell apart when the House of Commons approved the “Benn Bill” calling for a three-month extension of the Brexit date to 31 January 2020 if the United Kingdom had neither reached an agreement with the European Union nor secured parliament's approval for a “no-deal” exit.
Twenty-one Conservative MPs (including several former ministers) voted against the government, despite Johnson's insistence that the UK would have a stronger hand at the negotiating table if a no-deal Brexit remained a possibility. However, figures from the IMF suggest that a no-deal Brexit would actually be more damaging for the UK than for the EU.
UK has more to lose in a no-deal scenario
Even if a deal is struck before Brexit, the terms of that deal and the consequent level of trade access for the UK will have significant implications for the economic relationship between the EU and the UK, with an especially large impact on the UK's services sector.
Nearly half of all UK exports go to the EU, a number which would surely decrease in a no-deal Brexit world given possible jumps in tariff rates, regulatory divergence, and the imposition of non-tariff barriers.
While other countries would benefit more
However, the UK's and Europe's losses will open doors for other leading economies to profit. The EU and UK will increasingly look elsewhere for imports as costs of imports from each other increases, with the United States, China, and even India looking to benefit the most. Neverthless, most analysts believe that not all the losses to the UK and EU from the disruption of their long-standing close trade relationship will be made up by trade diversion elsewhere.
Election is the most likely outcome for now
Boris Johnson's parliamentary setback this week reinforced Eurasia Group's view that the most probable outcome for the UK is a new general election (45% probability), but it is unclear whether this will be held before or after 31 October. We hold the chance of a no-deal Brexit at 30%.
In the event of an election, current polling trends favor the Conservative Party, which has gained at the expense of the Brexit Party in recent months. However, it is not guaranteed that all Conservative members would side with Boris Johnson's no-deal Brexit strategy, suggesting that the UK will continue to muddle through Brexit uncertainty even with a new parliament and government.
Read British Prime Minister Boris Johnson has suspended the UK's parliament. What happens next?, New UK prime minister to play hardball on Brexit, The quick read about ... the UK after May, and *Brexit in our Top Risks 2019 report to learn more.