The U.K. government rejected Prime Minister Theresa May's Brexit withdrawal deal Tuesday.
Members of Parliament voted down Ms. May's latest version of the agreement 391-242 following her meeting with European Union leaders earlier Tuesday to seek concessions. After the deal was rejected, Ms. May reiterated that "her deal" was the only available deal that would deliver on the promise of the referendum on June 23, 2016.
The U.K. MPs will vote Wednesday on a motion to leave the European Union without a deal on March 29. If defeated, the MPs will vote Thursday to approve an extension to Article 50, which will extend the deadline of U.K.'s exit from the EU beyond March 29.
The pound sterling fell 0.63% vs. the dollar over the day, to $1.31. The FTSE All-Share rose 0.28% over the U.K. trading day Wednesday.
"Further sterling volatility is likely during the extension period as U.K. politics faces potentially significant realignment in that extension period and the potential for another trip to the polls for voters," said Stephanie Kelly, senior political economist at Aberdeen Standard Investments, in an emailed comment. "In particular, a general election would pose a challenge to investors: While a Labour government would likely pursue a softer Brexit, the nationalization policy agenda worries many investors."
Elliot Hentov, head of policy and research at State Street Global Advisors, said in an emailed comment: "The rejection of May's deal sends one certain message to markets: more uncertainty. Sterling had picked up a bit on the prospect of a breakthrough in Strasbourg, but lost ground during Westminster debate."
