How An Unexpected Court Ruling May Affect Britain’s Plan to Withdraw from the European Union | Capital Group

  • About Our Firm
  • What Sets Us Apart
  • Wealth Planning
  • Latest Perspectives
  • Contact Us


How An Unexpected Court Ruling May Affect Britain’s Plan to Withdraw from the European Union

By Robert Lind
Capital Group Economist

On November 3, a United Kingdom High Court ruled that the British government must seek Parliament's approval before invoking Article 50 of the Lisbon treaty, which is the necessary legal step in order for the U.K. to leave the European Union.

Previously, the government had suggested the prime minister could use a royal prerogative to set the clock ticking on the U.K.'s withdrawal from the EU. The British pound sterling’s initial response to the developments was positive. The knee-jerk reaction reflects the view that we are now more likely to see a “soft” Brexit.

A few thoughts on the recent developments:

  1. The government has said it will make an appeal to the Supreme Court to overturn the High Court ruling. This could happen over the next month or two. If the appeal is successful, this would hand the initiative back to the prime minister.
  2. Even if the appeal fails, it is unclear what role Parliament will play in the process of invoking Article 50. It might hope to slow things down, but we are in uncharted constitutional territory. Those in favor of Brexit are already questioning whether the government should be bound by this ruling. Remember that the U.K.'s executive, that is, the prime minister, dominates the political system. What the prime minister wants, the prime minister generally gets, until he or she is sacked or resigns.
  3. So far, Prime Minister Theresa May has carefully avoided revealing her own position. Instead, we know there is a tussle between several pro-Brexit politicians and the Treasury. At some point, the prime minister is going to have to choose a side. When she does, we can expect additional bitter responses from the other side.
  4. The political uncertainty around Brexit isn't going away. The Labour Party’s mixed record as an effective opposition will embolden both pro- and anti-EU wings of the Conservative Party to dig in to their positions.
  5. Brexit supporters know that they have to invoke Article 50 as soon as possible to ensure a reasonable proximity to the referendum. The anti-Brexit proponents know the longer they can delay the Article 50 process, the more difficult it will be to defer to the will of the people. In the extreme case, they might hope to trigger a general election on the issue.
  6. While there is continuing hope of a soft Brexit, I am increasingly convinced the outcome will be binary: either it won't happen at all or we will get a hard Brexit. I don't see any practical third way that is acceptable to Brexit supporters and the rest of the EU. We can expect more turbulence as events unfold.

Robert Lind is an economist at Capital Group. He has 28 years of industry experience and joined Capital Group this year. Prior to joining Capital, Robert worked as group chief economist at Anglo American. Before that, he was head of macro research at ABN AMRO. He holds a bachelor's degree in philosophy, politics and economics from Oxford University. Robert is based in London.