Theresa May’s Brexit plan failed in Parliament on Tuesday after 432 out of a total 634 MPs voted against the deal. The defeat could now trigger devastating market reactions. After the vote on Tuesday, the pound plunged as the political uncertainty caused investors to take a step back, but traded higher against the euro on Wednesday.
How will Brexit vote result affect the UK economy?
Sterling started off strong on Wednesday and is currently trading higher against the euro.
At 4pm on Wednesday, the pound was at €1.1283, up 0.07 percent.
But the climbing exchange rate could be short-lived as unusually shallow volumes of the currency is being traded at the moment.
The unstable politics in Britain has began to rattle the nerves of investors with many now taking a “wait-and-see” approach.
According to Francesco Moscone, professor of Business Economics at Brunel University London Tuesday’s result could have a significant disruption to the UK economy.
Prof Moscone told Express.co.uk: “A disorderly Brexit has the potential of leading the UK into a recession, which could have significant disruption to finance and economic growth.
“However, such disruption will not only impact the UK, but also its European counterparts that are currently facing a slowdown in economic growth.”
He added: “With a potential no deal we do not know how resilient the UK economy will be.
“In fact, the uncertainty has led to a lack of preparation necessary for businesses.
“This will have serious consequences for the investors as well as consumer confidence.”
The Bank of England (BoE) also warned on Wednesday that a jump in sterling after parliament crushed Prime Minister Theresa May’s Brexit plan should not give too much comfort.
BoE’s executive director for financial stability Alex Brazier explained if Britain crashes out of the EU without a deal, the country would not be able to sustain its existing current account deficit and this would lead to “a painful adjustment” of less investment and a weaker pound.
Mr Brazier told as much as 60 percent of inflows of foreign capital came form investment in British commercial real estate and leveraged loans issued by companies with already-high levels of debt.
He said: “It’s not difficult to imagine a number of things both external and internal that could change that risk appetite.
“Ultimately the UK has the mechanism, a flexible exchange rate, to make that adjustment, but getting from A to B is not straightforward.”
The BoE has also said the UK could suffer greater damage to its economy than during the 2007-09 global financial crisis under no-deal exit from the EU.