UK: High court hears constitutional challenge - BBH

Research Team at BBH, suggests that the UK decision to leave the EU has been both a political and economic shock and the near-term focus now shifts to the constitutional crisis that has ensued. 

Key Quotes

“The key issue is what role does parliament have, and it is crucial because the House of Commons is less enthusiastic about Brexit.  Recall that those favoring to leave the EU won the referendum 51.9% to 48.1%.  

Prime Minister May recognizes a role for Parliament but less what many of them would like.  Specifically, claiming royal prerogative, May says it is her call when to trigger Article 50 of the Lisbon Treaty that formally begins the separation negotiations.  She also claims the right to set the strategy.  

The British High Court begins hearing the case yesterday.  It is expected to finish on Monday.  Regardless of the ruling, the losing side will appeal to the Supreme Court, and this will be fast-tracked for a decision before the end of the year.   While, the specific issue involves a treaty, which the High Court has often been reluctant to interfere with, the more general issue is the role of Parliament.  Following a non-binding referendum, does Parliament need to pass a new law to implement the outcome?  

The Financial Times reports that the constitutional committee of the House of Lords concluded recently that it would be "constitutionally inappropriate" and create a troubling precedent to act o the results of the referendum without Parliament's approval. Some argue that the referendum was about empowering the UK Parliament over Brussels. 

Even with the likely appeal of the High Court's decision, there could be a market impact.  Sterling's depreciation has gathered pace since May indicated Article 50 would be invoked by the end of Q1 17 and that priority would be given to controlling immigration over preserving access to the single market.    The prospects of a hard exit from the EU weighed on sterling.  The possibility of a delay and a softer exit could spur some position adjustments that could help sterling recoup some of its recent losses.  

Separately, Scotland's First Minister Sturgeon has announced she will publish a draft Scottish Independence Referendum Bill next week.”