Brexit Bulletin: What Comes Next After the Article 50 Court Ruling?

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Nobody said the divorce was going to be easy.

Before Theresa May even engages with her European Union counterparts, she's facing trouble at home. Her government is now confronting a judicial ruling that Parliament – rather than the prime minister – has the power to start the two-year process of leaving the EU.

Friday's newspaper front pages revealwhat the pro-Brexit newspapers think of allowing U.K. judges to interpret U.K. law:

The ruling will be reviewed by the Supreme Court in December, but the debate quickly turned on Thursday to what will happen if lawmakers do secure the final say on triggering Article 50 of the Lisbon Treaty.

Few think they will actually shoot down Brexit. Doing so would run counter to the referendum result and polls suggest voters haven't really changed their minds since June. May spoke to European Commission President Jean-Claude Juncker today, in what was a described as a “rather short” phone call, to tell him there's no going back.

Still, politicians from all parties – including some Conservatives – will want May to reveal more of her negotiating strategy. The government accepts that if the ruling stands, votes in both the House of Commons and House of Lords will be needed. That could entail some horse-trading. It's already too much for one: Conservative MP Stephen Phillips has resigned with immediate effect, citing “irreconcilable policy differences” with May's government.

If May doesn't appease her opponents they would be able to withhold their votes for Brexit and so jeopardize her pledge to invoke Article 50 by the end of March. The Tories' thin majority means May would have to pay a political price to get the withdrawal process triggered.

Kallum Pickering, an economist at Berenberg, thinks May will likely have to soften her Brexit demands. So far she has signaled a preference for a so-called “hard Brexit,” prioritizing immigration controls over safeguarding trade. That's a position that disappoints many executives, bankers and lawmakers.

“The government would only get a thumbs up for Brexit if it agreed to pursue an exit from the EU that maintained a high level of market access, and – presumably – few restrictions on EU migration,” said Pickering.

Not so fast, said Jordan Rochester, a strategist at Nomura. He says the alternative, a so-called “soft Brexit,” is “a false hope and one that could eventually prove painful once the markets' hard Brexit realization comes back into full play.”

As with all things Brexit, for now the only certainty is uncertainty.

There could even be….

An Early Election?

There was chatter of that on Thursday with Deutsche Bank strategists saying they now expect such a ballot next year.

No vote is due before 2020 and while May's office yesterday promised (again) that she wouldn't move early, Bloomberg's Robert Hutton says there are reasons for her to go to the country in 2017. Yesterday's ruling just adds another.

If the current opinion polls are correct, an election would enable May to win her own mandate, secure an endorsement of her Brexit strategy and increase the size of her parliamentary majority, currently 15. Waiting until 2020 also runs the risk that the economy begins to struggle and that the opposition Labour Party gets its act together.

Still, the polls may not be accurate. May would need two-thirds of lawmakers to prompt an election, given Parliament's fixed term, and the government will be up to its eyeballs in Brexit planning. While global risk analysis firm Eurasia Group said the litigation makes a 2017 election more likely, it still puts the probability at just 20 percent.

The Supremes

Unlike its U.S. equivalent with more than two centuries of history, Britain's top court is just seven years old, making the Brexit case its toughest test yet.

“It will be the most important constitutional case that court will have heard,” said Robert Thomas, a professor of public law at the University of Manchester.

All of its 11 judges are set to hear the government's appeal, with a ruling likely in early January, according to review of the court's work so far by Bloomberg's Patrick Gower and Jeremy Hodges. Of the 92 appeals it heard in the year since from April 1 2015, 34 were successful and 31 were dismissed.

Meanwhile, Noah Feldman of Bloomberg View says the courts don't care if the people want Brexit.

On the Markets

The pound soared yesterday amid speculation of a softer Brexit. Bank of England Deputy Governor Ben Broadbent told the BBC this morning that the currency is likely to stay volatile amid uncertainty.

Yesterday's swing in sterling meant Brexit's corporate winners and losers traded places. Shares of EasyJet and British Airways owner IAG and other companies that have suffered from the weak pound rose, while beneficiaries of it such as Diageo and Burberry fell.

Meantime, traders are again preparing to assume the fetal position as Tuesday's U.S. election nears.

Brexit Bullets

• Societe Generale CEO Oudea says just a few dozen people may be moved on Brexit 
• Carney dials down policy guidance as Bank of England sees future wide open
• Carney tells BBC he will not stay in office beyond 2019 regardless of Brexit 
• BOE's Cunliffe says some U.K. financial activity may move to EU on Brexit 
• Safran's Ross McInnes says pitch for business in France isn't about sweetners 
• White House encourages “smooth, pragmatic” Brexit process 
• Article 50 is not irrevocable, says the man who wrote it, Times reports 

And Finally…

"Brexit" was yesterday named the word of the year by the dictionary publisher Collins. Three years since its earliest citation, usage jumped 3,400 percent so far this year. Other words or expressions in the top ten list were "Trumpism" and "mic drop."

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To contact the author of this story: Simon Kennedy in London at skennedy4@bloomberg.net.

To contact the editor responsible for this story: Adam Blenford at ablenford@bloomberg.net, Andy Reinhardt