The City is braced for a hard Brexit – why aren’t MPs?

Had things worked out differently we could have woken up this morning to news that MPs voted last night in favour of Theresa May's withdrawal agreement.

The transition period was secured, talks would move on to the future trade deal and businesses would breath a mighty sigh of relief.

Instead, we rise to find another day of constitutional crisis, political turmoil and economic uncertainty. While May battles to win sufficiently meaningful concessions from EU leaders on the terms of the controversial backstop arrangement, her enemies at home are gearing up once again for a leadership challenge.

If such an event is triggered, and May loses, a new Prime Minister would face the same parliamentary arithmetic and, crucially, the UK would still be set – by law – to leave the EU on 29 March next year. An Act of Parliament would be needed to overturn that legislation, and in the absence of that the EU has said it will only allow an extension to the Article 50 date to facilitate a UK general election or, God help us, another referendum. If this possibility is dismissed, which it should be, then the only viable options are either May's deal (with or without improvements) or no deal.

While MPs struggle to confront this reality the City is stepping up its no-deal planning. Companies will make their own decisions about whether to move jobs and capital (many have already done so) but behind the scenes UK regulators have been preparing for the worst, while hoping for the best.

The newly unveiled temporary permissions regime, under which EU firms would retain access to the City in the event of a no-deal Brexit, has attracted around 1,500 applicants. No longer willing to leave the issue in the hands of the EU Commission, EU member states have introduced domestic legislation to allow UK-based firms to service EU clients until at least the end of 2020. Germany has prepared for this, with France and Spain expected to follow suit. And yesterday, after months of pressure from UK regulators, EU officials finally fleshed out their plan to allow EU firms continued access to London-based clearing houses, the vital infrastructure behind trillions of euros worth of trades and transactions. City leaders have welcomed the move, and expect it to be placed in a legal framework within days.

None of this is optimal, much of it is messy and more ad-hoc arrangements will be cobbled together, but it demonstrates that – unlike Westminster – the City is getting ready for whatever lies ahead.