Does a Brexit Resolution Require a New Referendum or a General Election?

Political infighting abounds in the United Kingdom as the clock ticks relentlessly towards the March 29 Brexit date. Amid entrenched positions on all sides, Sandy Nairn, Chairman of Templeton Global Equity Group and CEO of Edinburgh Partners, argues that only a fresh referendum or a general election can break the Brexit deadlock and examines some of the implications for investors.

After another week of political upheaval in the United Kingdom, the probability that the House of Commons will support Prime Minister Theresa May’s proposed Brexit deal has diminished further. That being the case, we now feel that there can be no end to the Brexit deadlock without either a fresh referendum or a general election.

A soft Brexit, along the lines of the withdrawal agreement proposed by May, now seems the least likely outcome, given the opposition to the proposals on all sides of the House of Commons. We also see little chance of the so-called “Norway Option,” which requires free movement of people, gaining any traction.

Therefore, the only options left on the table at this stage of negotiations are “no deal” (Hard Brexit) or another referendum, possibly leading to a general election.

Other than with a small core of ideologues, there is little enthusiasm for a Hard Brexit, either in the UK Parliament or among the public at large. We believe, along with most observers, that exiting the European Union (EU) without a deal would be a mistake. In our opinion, no deal would be an outcome which flowed from circumstances rather than a deliberate choice.

The Path to a New Referendum

May has set her face against a fresh referendum and her Conservative Party colleagues are wary of a General Election given their shaky standing in opinion polls.

But May’s political standing has been fatally damaged after last week’s leadership challenge in which two-thirds of her backbench members of parliament (MPs) voted against her.

We think she is likely to continue as Conservative leader only as long as Brexit is unsettled and while her party attempts to find “the right” successor.