The United Kingdom has been trying to leave the European Union for nearly three years now. The "divorce" process has dragged on, and Great Britain does not succeed in taking this step. Two weeks later, elections will be held in the country, the outcome of which will determine not only the composition of the next Parliament, but also the fate of Brexit.
The range of possible scenarios is still wide - from Britain leaving the EU without a deal to holding a second referendum and maintaining the country's membership in the bloc.
How can the situation develop?
1. Most Conservatives
Opinion polls confirm that the Tories will receive more than 325 seats in Parliament.
Under this scenario, Conservatives will win in areas where Labour positions have traditionally been strong, and Tory supporters in the south will decide that their opponents' leader, Jeremy Corbyn, does not like them more than Brexit.
In this case, Boris Johnson will try to pass his version of the deal with the EU through Parliament until December 31. Given that all candidates for MPs from the Conservative Party have promised to support this agreement, the prime minister can quickly get the deal approved in the House of Commons, with the support of the majority. Thus, the United Kingdom will leave the EU by January 31, 2020.
Will the Brexit process end there? Of course not. Johnson will have 11 months to conclude a trade agreement with the EU. MPs will carefully study this deal, and the assurances of loyalty made by the Tory candidates do not apply to it. If the prime minister does not have a majority with a margin of more than 40 votes, there is a risk that the Conservatives, who are in favor of a more decisive break with the EU, will try to force Johnson to support the more "hard" Brexit scenario.
2. The situation will change little
Conservatives will be the largest party in Parliament, but they will not have a small number of votes to the majority.
This can happen if the Tories fail to intercept votes in the Labour regions of support. Voters in these areas will decide they do not trust Johnson. Seats in the regions that vote for leaving the EU, which Conservatives can win, will be offset by losses in areas that prefer to remain in the bloc.
In this case, uncertainty regarding Brexit will remain. Most likely, Johnson will refuse to resign, and the opposition parties will not be able to agree on what should happen next. A series of votes will be held in the House of Commons during the New Year season: a new postponement of Brexit, approval of a deal by Johnson, a second referendum, or even a new election.
3. Labour in government, but who is the leader?
The Tories will receive less than 300 seats in Parliament, the Laborites will also lose ground, but will enter the government thanks to the support of smaller parties.
Conservatives will receive votes in areas that have already been controlled, but will not gain enough seats in regions that should have been intercepted from other parties. The Tories will take seats from Labour in the center of the country, albeit to a lesser extent than expected, and lose to the Scottish National Party in Scotland. By receiving a series of votes that voters will give to the Liberal Democrats, this party will somewhat squeeze the Tories in the south.
In this scenario, we should expect a new delay in Brexit, as Johnson's position is clearly shaken. However, who will replace him? It is assumed that the liberal democrats will refuse to bring Corbyn to power and will urge the Laborites to choose an alternative prime minister. That is, by Christmas, a struggle will unfold between the supporters of Corbyn and his opponents. When a new government is formed in January, the focus will shift to the request for another Brexit postponement from Brussels - this time for a second referendum.
4. Prime Minister Jeremy Corbyn
Labour will be able to convince voters that the Tories are not trustworthy and are only interested in Brexit. At the same time, the promise of the Laborites to increase spending on public services will not only help maintain the existing share of the vote, but also win new supporters.
As a result, the number of seats in Parliament at the Conservative Party will be reduced to 280, and the Labour Party will improve their positions to a similar level. They will enlist the support of the SNP by proposing a new referendum on independence. As a result, Corbyn will become the new prime minister. He will head to Brussels to secure a deal that will allow the United Kingdom to stay closer to a single market with the EU. It is possible that negotiators from the EU will propose an appropriate option, which Corbyn will submit for a second referendum along with the opportunity to remain in the EU.
What to expect from the pound?
In anticipation of the election, a decrease in the level of support for Conservatives in opinion polls will be a short-term bearish factor for the pound, while a wider separation of Tories from the Labour Party will lead to an increase in the British currency.
If, following the election results, Conservatives get a majority in Parliament and lawmakers approve the Brexit plan proposed by Prime Minister Johnson, then this will probably be followed by a strengthening pound.
If the Tories are defeated in the election, Johnson's position in Parliament will be weakened, the adoption of his version of the divorce agreement with the EU will also be in jeopardy, which will further increase uncertainty about Brexit and the prospects for the pound.
"Pound investors should be better prepared for the risks associated with the December elections in the UK," warn BMO Capital Markets strategists.
According to them, market participants are underestimating the likelihood of a "suspended" Parliament appearing after the election and the failure of negotiations on trade relations between the United Kingdom and the EU.
"Even if Conservatives get a majority and Parliament approves a withdrawal agreement promoted by Prime Minister Johnson, the UK can still leave the EU without a deal," the experts said.
