How the Brexit vote defeat impacts Australia How the Brexit vote defeat impacts Australia How the Brexit vote defeat impacts Australia

How the Brexit vote defeat impacts Australia

Macro 7 minutes to read

Summary:  Australia's historic ties to the UK hardly obviate the scale of its interactions with the European Union, which is the country's second-largest trade partner. The defeat of PM May's Brexit bill only extends the uncertainty, as every option from here seems plagued by its own unique problems.

At this point, Brexit remains in a state of flux and none of the uncertainty has been removed. There are still many scenarios on the table and the week ahead will be messy and headline-driven. 

It is likely that today's no confidence vote will fail. For Labour leader Jeremy Corbyn to win the no confidence vote he must rely on DUP and conservative rebel votes; Conservatives voting against May's deal is one thing, but sinking your own party is another. It seems one of the only things that conservatives agree upon is that a Corbyn government isn’t a favourable outcome. 

But if in the unlikely event that a no confidence motion passes and we head towards general election, this would be sterling-negative. 

Once the no confidence vote fails, we expect May’s government to turn to MPs to vote on possible paths, like whether to pursue a softer Brexit stance, possibly a Norway-style route, or how to protect from a no-deal outcome. With Parliament in control of Brexit, a cross-party compromise is likely to lead to a softer Brexit and veto the no-deal/crash-out option – which is more market-positive and one reason why sterling remains resilient at this stage. 

While that remains a likely outcome, it is still unclear what will happen from here. It is hard to determine what the majority in Parliament actually is – it seems the only consensus is that May’s deal is a no-go, and that a no-deal Brexit must be avoided, but there is no idea of how to proceed. As long as the disorderly no-deal Brexit odds remain low, then we can avoid a sterling plunge and bleed into broader equity markets. The threat of a disorderly Brexit has decreased as such an outcome is not good for either side, and represents something that EU leaders and Britain will want to avoid.

While the EU seem to be playing hardball at the moment, it is likely negotiations will go right down to the wire before a last-minute compromise can be reached.

There is also the possibility of a second referendum, but we don’t view this as a likely option. While this is the outcome the markets would like and arguably the most economically robust and sterling-positive (depending on the question asked), it certainly is not an easy option to pursue. The market may be overestimating the likelihood of this outcome. The British public is not in support of a second referendum according to a YouGOV poll conducted Tuesday (8% say Yes) and Parliament cannot rebel against the peoples' vote and call a second referendum without risking civil insurrection and a wall of cynicism for British democracy.

If a second referendum was to be called, what would the question even be? We could debate this for days... would a no-deal Brexit be a voting option? Or would it be between Remain and May’s deal? Parliament reaching an agreement on this could take some time, let alone putting the rest of the referendum into motion, which could take several months. 

Looking at the available pathways it looks like all roads lead to a delay of Brexit and extension of Article 50. This only serves to maximise the economic paralysis as businesses and consumers are stuck in limbo and unable to make decisions about the future. 

For Australia, the final outcome will depend on the final deal between the EU and UK. The latest developments have not offered up any form of clarity on the final outcome, so at this stage the effects on global markets are muted, with the impact being felt in currency and UK markets. If anything, the uncertainty just adds to a long list of worries present at this stage. But Australian businesses with operations in the UK will not escape the economic uncertainties and inability to make decisions about the future that have arisen from political paralysis. 

Exports are a key driver of GDP growth in Australia so maintaining trade agreements with both the UK and the EU will be a priority. The EU is Australia’s second-largest trading partner and largest source of foreign investment. Australia has started Free Trade Agreement negotiations with the EU, and it will be important for Australian interests to remain with the EU, being a 508 million-person export market.

Australia has a significant trade relationship with the EU, with exports valued at $20.3 billion in 2016 representing a 7.8% share of total Australian goods exports, not accounting for services. The decision to begin negotiations on an FTA with the EU reflects that strong relationship and should remain a priority.  

In the event of a no-deal Brexit, opportunities could arise for Australia whereby an FTA agreement may be negotiated with the UK. This could potentially provide more favourable terms of trade and increased exports to UK for Australia. But it must be remembered that in the event of a no-deal Brexit, the negative demand-side impact and ensuing contraction in the UK economy could outweigh the positives of the free trade deal for Aussie exporters, at least in the short term. 

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.