Traders and investors nervously contemplated their next moves after lawmakers last night rejected proposed Brexit withdrawal plans by a huge majority.

UK equities and sterling came under pressure this morning after lawmakers last night massively voted against Prime Minister Theresa May’s deal to leave the European Union. Parliament is to hold a vote of no confidence in the administration after May’s withdrawal package was rejected by a margin of 230 votes. Some 118 Conservative MPs voted against a deal that they said delivered “Brexit in name only”. 
Some 432 MPs voted against the government proposals yesterday, and 202 voted for them.

As of the time of writing, there are a number of possibilities, including a delay to the UK leaving the European Union under the Article 50 withdrawal process, a second referendum on the issue, or even a general election. In recent days wealth management firms such as UBS and Citi Private Bank have urged clients to avoid taking bets on sterling because of expected volatility following the vote. Another possibility is that the UK leaves without any negotiated agreement with the EU at all.

A no-deal Brexit is seen as a risk by big business, particularly firms with international exposures. They worry that the country’s ports, airports and other important infrastructure are not ready for such a switch, and that it will hit trade and supplies. Such a scenario means that the UK would rely on the tariff limits set by the World Trade Organisation, of which the UK is a member. Pro-Brexit politicians argue that such an exit cannot be regarded as “crashing out” because the UK could, for example, unilaterally remove tariffs, prepare its infrastructure, and refuse to pay the EU a slated £39 billion ($50.2 billion). Critics of the May proposals have argued that it keeps the UK in the bloc in all but name, giving the UK limited freedom to do its own trade deals, seen as one of the very reasons for leaving the EU in the first place.

The stakes are high for the UK’s financial services industry, including wealth management. A continuing concern will be the degree of access that the UK gets to the European financial market in the months and years ahead. 

“At this stage we do not advocate taking directional views on sterling and UK assets. The reaction of the pound following the vote would suggest that markets are not currently increasing the risk of an adverse outcome. For the time being, we expect that uncertainty will remain high and UK markets will stay volatile. Within portfolios, exposure to sterling-denominated assets should be maintained at benchmark levels until more clarity emerges,” Dean Turner, economist at UBS, said today in a note.

Richard Buxton, head of UK equities and manager of the Merian UK Alpha Fund at Merian Global Investors, said: “In recent days, sterling has strengthened against the US dollar and the euro, as investors increasingly perceived that the risk of the UK leaving the EU without a deal was receding as Parliament asserted its authority.”

“The UK equity market has similarly strengthened recently, with the strongest bounces seen in more domestically focused companies such as retailers. Notwithstanding increasing optimism that a no-deal scenario can now be avoided – there is clearly no mandate for that outcome, either – continuing uncertainty over Brexit will remain a significant `handbrake’ on the UK economy and UK stock market.”

“Only when certainty over the UK’s future relationship with the EU emerges is business confidence and investment, and indeed consumer confidence, likely to return. Until such a time, the `handbrake’ will, I believe, remain obstinately jammed. Any extension of the Article 50 process would, in my view, simply perpetuate the present impasse,” he said. 

“If a deal can ultimately be agreed, I believe we may see the Bank of England hike policy interest rates up to three times over the course of 2019. Conversely, if the UK does leave the EU without an agreement, I would expect the Bank’s Monetary Policy Committee to move rapidly to cut interest rates from their already-low levels. The resumption of monetary stimulus, in the form of quantitative easing would, in my view, be a possibility,” he said. 

Newswires noted that sterling appreciated slightly against the dollar in early dealings this morning, with the defeat for May seen forcing Britain to pursue different options, including a delay to Brexit.