In the immediate aftermath of the devastating defeat of Theresa May’s Brexit plan in the House of Commons on 15 January sterling, the key market barometer on Brexit, went up in value.

Investors will have priced in a vote against the deal, which was widely predicted across the board, but the scale of the defeat, unprecedented in modern parliamentary history, likely means May cannot return to MPs offering a similar deal with only slight tweaks.

Judging by the initial reaction in the pound, there are hopes this will be a catalyst for a softer Brexit outcome but really very little has changed with a deal, no deal, general election, second referendum and even no Brexit all still on the table.

As we write May is widely predicted to survive a motion of no confidence brought by Labour leader Jeremy Corbyn. Attention will then turn to Monday 21 January when she will need to update MPs on her plans.

Even if she loses the vote or if there is a change of leadership forced by her own party the parliamentary arithmetic means her successor would face a very similar challenge.

You should expect sterling to rally on any sign that Article 50 is to be extended as this would remove the immediate cliff edge created by the scheduled departure date of 29 March, though it would also prolong the uncertainty.

WOULD ‘NO DEAL’ AT LEAST OFFER CERTAINTY?

Some observers think the relatively certainty provided by a no-deal Brexit would make it a preferred outcome for markets.

Franklin Templeton’s head of European fixed income David Zahn, who puts the chances of a no-deal outcome at 30% to 35%, says: ‘Two and a half years ago, with all the options for a negotiated Brexit on the table, a hard Brexit seemed to be the worst-case scenario.

‘Now, markets may feel that it’s preferable to bring an end to the uncertainty and accept the short-term pain.’

Ahead of the vote hedge fund manager Crispin Odey, who was a significant donor to the Brexit campaign, said he expected Brexit to be abandoned and was positioning for a rally in sterling.

Ultimately the situation remains highly unpredictable, although one thing is clear. Without fresh legislation or a delay to, or rescinding of, Article 50 the UK will leave the EU on 29 March.

This is the scenario with the path of least resistance, while all other outcomes will require something to happen.

And until there is greater clarity on what comes next, sterling and UK-focused assets, including the shares of housebuilders, UK real estate firms and banks, are likely to remain volatile.

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