The pound had its best day since fears of a “hard Brexit” gripped the currency market two weeks ago after a UK government lawyer said that parliament would have the final say on whether to accept Britain’s exit deal with the EU.
Theresa May, prime minister, has refused to allow members of parliament to vote on triggering EU divorce proceedings, and in a High Court proceeding in London on Tuesday, government lawyers insisted that refusal is legal.
But James Eadie, a lawyer for the UK government, also told the High Court that the final deal with Brussels, which would be negotiated over two years after Brexit is triggered, was “very likely” to be subject to parliamentary approval.
“The view within government is that it is very likely that this treaty will be subject to ratification process in the usual way. Most of them are,” he told judges during a court hearing on whether Mrs May could trigger exit on her own.
The remarks sent the pound rallying 1 per cent to $1.23, its biggest gain since mid-August as traders worried about Mrs May’s hardline rhetoric took solace that the full parliament could block a British exit without a favourable trade deal with the EU.
Sterling had fallen 6 per cent since the Conservative party conference two weeks ago, where Mrs May and top ministers strongly signalled that they were prepared to walk away from the EU without special access to Europe’s single market — a “hard Brexit” that many economists believe will damage the UK’s economic prospects.
Despite Tuesday’s rally, banks still differ on the short-term direction of the pound. Goldman Sachs, which had been forecasting $1.20 for sterling, said it believed that the currency was still overvalued and had further to fall, but BNP Paribas maintained that the pound is now undervalued and capable of reviving to the $1.29 mark.
The falling pound has sparked fears that Britain could be heading for a period of higher inflation as the price of imported goods begins to rise.
Data published on Tuesday showed that inflation in September rose to 1 per cent, the highest level in almost two years. Although the rise was attributed to a spike in clothing and oil prices, the Office for National Statistics said that the numbers did not yet fully reflect the impact of a falling pound.
UK law requires the government give parliament the opportunity to consider treaties that are subject to ratification. The House of Commons could block a treaty indefinitely by voting against it repeatedly but it cannot amend a treaty. Any vote would be unlikely to take place before 2019, given the maximum two years for completing the Article 50 process.
Mr Eadie is defending the government against a legal challenge brought by government critics, including fund manager Gina Miller, who argue that parliament must have a vote on the decision to invoke Article 50, the provision in EU treaties that triggers exit.
While a majority of MPs would be likely to vote in favour of triggering Article 50, many would first demand more clarity on the government’s position, including details of the economic impact of leaving the single market and customs union, and imposing immigration restrictions on EU citizens.
About three-quarters of MPs were in favour of remaining in the EU, although many have since said that the will of the people, as expressed in the June referendum result, must be respected. A majority of parliamentary constituencies voted Leave.
The claimants in the legal case argue that, once invoked, Article 50 is irreversible. Even if parliament were given a say on the final deal in 2019, it would be “too late” to refuse to ratify it, they argue.
Article 50, which its drafters say was never intended to be used, does not indicate whether a country can remain in the EU once it has made clear it wants to leave.
David Pannick, a lawyer for Ms Miller, told the High Court that even if parliament refused to agree to the final Brexit deal “we still leave the EU”.
“Parliament cannot reverse the notification,” Lord Pannick told the court. “All that happens is either there is no agreement and we still leave or there is a new agreement but the new agreement cannot restore the [citizens] rights lost.”
Mrs May has argued that parliament does not need to be given a vote on Article 50, given the referendum result.
Parliament will be able to vote on the Great Repeal Bill, a largely procedural and symbolic measure that will ensure legal continuity post-Brexit by incorporating all EU law into UK law.
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