UK: Decision to leave the EU remains a high divisive issue - BBH

Research Team at BBH, suggests that the UK's decision to leave the EU remains a high divisive issue not only in Europe but within the UK itself.  

Key Quotes

“The referendum was approved with the narrowest of margins, but a combination of hubris and naivete prevented the establishment of a threshold for such a significant change, such as 60% or 2/3.  Also, since the decision profoundly impacts the future of the UK, there is no compelling reason why the franchise was not extended to 16-year olds, as Scotland did for its referendum on independence.

Despite the proximity of the outcome, pundits and politicos are trying to divine the will of the people, and like a Rorschach test, people see what they want.   There was nothing in the referendum that indicated the role of Parliament and the Prime Minister in devising and negotiating with the EU over the separation.  Treaty negotiation and foreign policy is usually a remit of 10 Downing Street.

At stake how acrimonious does the divorce need to be, and the referendum did not address this issue.  A hard Brexit is one that denies the UK access to the single market on the same terms as is the case currently.  A soft Brexit preserves this access.   The dilemma turns on how hard the UK wants to free itself from the EU principle of free movement of people, though it is not a member of the Schengen Agreement.

The UK's "Brexit" team, which Prime Minister May selected, is inclined to push for hard Brexit.  For them, limiting immigration is the number one priority.  The former head of UKIP was quoted in press putting the fine point on it:  less prosperity is acceptable if it means fewer immigrants.   On the other hand, Parliament is coming from the other direction.  There is both a constitutional issue of the role of parliament as well as a more moderate approach to Brexit. 

The UK High Court is expected to announce its ruling on Monday.  Sterling's near-free fall in the foreign exchange market is a reflection of the risks of a hard exit.  The value of UK assets is understood to be less if it is no longer has access to the single market.  The greater the role of that the High Court insists on for Parliament, the more hard Brexit may be tempered.  In turn, this could help spur a short-covering recovery of sterling. 

However, there are two mitigating factors that will not be lost on investors.  First, regardless of the decision, one side or the other will appeal to the UK Supreme Court.  A decision would be expected before the end of the year.  Second, in some ways, and not to put too fine of a point on it, but what the UK wants may not be the deciding issue (and who doesn't want one's cake and eat it?).

It is not in the EU's interest to make it easy anyone that wants to leave or to allow any member to treat the Community as a smorgasbord where one can pick the and chose one what is on one's plate.   Benefits cannot come without costs.    The idea that the UK can retain access to the single market without accepting the free movement of people is a non-starter.  Judging from comments from EU's Tusk, any exit from the EU will be a hard exit.  Article 50 of the Lisbon Treaty, which is to govern the exit process, is designed to give the EU not the member state the upper hand in the negotiations.”