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Theresa May’s plan for Brexit resoundingly defeated

U.K. Prime Minister Theresa May

Vote of no confidence set for Wednesday

Members of Parliament have voted against U.K. Prime Minister Theresa May's Brexit deal, in a move that extends uncertainty for markets and money managers over the country's exit from the European Union.

MPs late Tuesday voted 432-202 against the deal, which set out plans for leaving the union.

Following the vote, the leader of the opposition Labour Party, Jeremy Corbyn, called for a vote of no confidence. The official Twitter account of the House of Commons said the vote of no confidence will be debated and voted on Wednesday. If successful, there will be 14 days for a new government to be formed or a general election will be scheduled.

The pound sterling dropped 0.92% vs. the dollar over the day, to $1.2763. The FTSE All-Share gained 0.481% over the U.K. trading day Tuesday.

"It is extremely disappointing that after such long negotiations the Brexit uncertainty continues," said Chris Cummings, CEO of the Investment Association, in a statement. "It is critical that every effort is made to avoid a no-deal exit from the EU, and the potential cliff-edge effects that this could bring. While asset managers have been working on no-deal contingency plans for a long time and are prepared for this scenario, it still remains the least desirable option for our industry, and for the millions of people who entrust us with their pensions and savings."

Mr. Cummings said firms are expected to continue to keep their no-deal contingency plans under review in light of the uncertainty Tuesday's vote brings.

"Tonight was never the night for clarity on Brexit," said Stephanie Kelly, political economist at Aberdeen Standard Investments, in a statement. "But the margin of Theresa May's defeat and the call of no confidence do matter for markets in the short term. On the one hand, the vote of no confidence steers markets towards the possibility of Labour's softer Brexit position, which would support sterling, but investors are also going to fret over Labour's more controversial policies."

Ms. Kelly added that elections tend to lead to market sell-offs due to them being "inherently uncertain events but the U.K. situation is more complex than a normal vote." She expects sterling to be volatile until the result of the no confidence vote is known.

Should Ms. May win the vote, "then we are going to essentially be in the same place as if the vote had happened four weeks ago but with a tighter timeline to Article 50 ending. Markets will be choppy in coming days but it's worth remembering that nothing fundamental has changed tonight. The wisest thing for investors to do in the short term, is nothing," said Ms. Kelly.

And Seema Shah, global investment strategist at Principal Global Investors, said in a statement that the outcome of the vote raises the chances of no Brexit or an extension of Article 50 — the agreement under which a country withdraws from the EU.

The U.K. is set to leave the union March 29.