Members of Parliament voted Wednesday to approve a three-month extension to the Brexit deadline, thereby ruling out Prime Minister Boris Johnson’s no-deal Brexit by Oct. 31.
In response, Mr. Johnson proposed early elections for Oct. 15.
On Tuesday, Parliament approved a motion to block a no-deal exit from the European Union on Oct. 31, following Mr. Johnson’s decision to suspend parliamentary proceedings.
The Tuesday 328-301 vote to take control of the parliamentary agenda was the first step in forcing Mr. Johnson to delay Brexit by at least three months and reject the government’s plans to exit the EU under any circumstances on Oct. 31.
If the general election is held, it will take place days before the EU Council summit on Oct. 17 during which the U.K. is expected to deliver its stance on Brexit to EU leaders, which was a condition of granting the extension from April 12 to Oct. 31.
Mr. Johnson said during the proceedings Tuesday that he intended to exit the European Union with a deal, but not the withdrawal agreement forged by Theresa May, the previous prime minister, and he wanted to end the prolonging of Brexit.
The pound sterling rose 0.92% against the dollar in Wednesday’s morning hours, to $1.21. The FTSE All-Share index rose 0.44% on Wednesday morning.
“As expected, markets have welcomed the sign of some certainty; sterling has rallied in the short term but I expect it will be more volatile as it responds to the next chapter of Parliamentary maneuvers,” said Shamik Dhar, chief economist at BNY Mellon Investment Management, in an emailed reaction to Tuesday’s vote. “All things being equal, we could expect the FTSE100 to be broadly flat in the short term as the lower chance of a ‘no deal’ scenario is offset/balanced by the rise in sterling. Meanwhile, the prospect of the prime minister calling a ‘people vs. parliament’ general election has also become more likely.”
Esty Dwek, head of global market strategy, dynamic solutions at Natixis Investment Managers, said in an emailed comment: “While the diminished risk of a no-deal Brexit should alleviate some of the markets fears, uncertainty is likely to persist well into October and the general elections, meaning investors are likely to continue to shy away from European assets.”
Ms. Dwek said the pound sterling could rebound sharply if the general election results remove the no-deal threat more permanently.
“European assets would benefit as well, as we believe that uncertainty has weighed on sentiment and flows,” she said.