Why Brexit might have just been completely blown off course

A court ruling Thursday that any Brexit plan would have to be approved by all U.K. lawmakers has radically changed the outlook for the country’s divorce with Europe, according to analysts.

“(It) has the potential to materially change the calculus of Brexit,” Kallum Pickering, a senior U.K. economist at Berenberg, said in a research note.

The court ruled that the entire U.K. parliament must vote on whether the country can start the process of leaving the European Union. This deals a blow to Prime Minister Theresa May, who had argued that the government on its own could trigger “Article 50” and start the divorce with the European Union, despite criticism that this was unconstitutional.

There had been concerns that lawmakers at the heart of the U.K. government would opt and force through a so-called “hard Brexit” without the consent of parliament. Politicians in the U.K. mostly campaigned to stay in the EU despite the wider public voting for the opposite. With the court ruling, it now makes it less likely that a “hard Brexit” scenario – which could have meant a loss of access to the EU’s single market – could be carried through.

The tariff-free trade agreement within the EU is seen as crucial for certain sectors like car manufacturing, despite promises that these sectors could be protected or subsidized. Initial negotiations between the EU and the U.K. highlighted that the country could lose this access if it wanted halt the free movement of people – with the latter seen as one of the major reasons why citizens voted for a Brexit.

“May and her cabinet had pursued Brexit under the assumption that the prime minister had the authority to trigger ‘Article 50’ under royal prerogative,” Pickering added.

“Without such power it is unlikely that the government would be in a position to fully pursue a hard Brexit – one where the U.K. placed strong restrictions on flows of migrants from the EU and did not keep a high level of access to the EU single market.”

This also has implications for banks, with the City of London voicing concerns that it might lose its “passporting” rights. These rights allowed American banks to set up their European sales operations in London which was seen gateway to the European market.

Pro-EU publications have breathed a sigh of relief on the ruling. However. Brexit proponent and former leader of the U.K. Independence Party, Nigel Farage said that the U.K. is now heading for a “half Brexit” and told BBC radio that he was “becoming increasingly worried.”

Meanwhile, Jeremy Corbyn, the leader of the opposition Labour Party said that must be “transparency and accountability to parliament on the terms of Brexit.” He added in a statement that Labour would be pressing the case for a Brexit that “works for Britain, putting jobs, living standards and the economy first.”

Sterling rose higher on the decision with investors seemingly pricing in the odds that the U.K. will now see a “softer” Brexit or indeed, no Brexit at all. Ken Odeluga, a market analyst at U.K. spread better City Index said that the court ruling had “set the cat amongst the pigeons with its dramatic ruling.”

However, with the government already announcing that it would appeal the decision, Odeluga predicts that the pound’s strength might not last.

“The appeal, which appears likely to be held in December, will drag out any process of resolution of the government’s powers under law regarding ‘Article 50’, even as its resolve to carry out Brexit in spirit and in fact remains undiminished,” he said in a note.

“That points to little let-up in sterling volatility, and in turn suggests Thursday’s significant strengthening of the pound may not last,” he added.

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