Brexit Bulletin: Blow at Ballot Box

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Prime Minister Theresa May suffered an electoral blow as the anti-Brexit Liberal Democrats unexpectedly won a parliamentary seat after making the vote a test of the government’s plans to leave the European Union.

“We do not want a hard Brexit, we do not want to be pulled out of the single market,” said winning candidate Sarah Olney.

May on Friday quickly ruled out holding a second referendum as her party declared “this result doesn’t change anything.”

To be sure, Richmond Park is in an affluent part of London in which more than seven-in-10 voters backed staying in the EU.

Still, the Liberal Democrat win could boost those hoping to overturn the referendum result or at the very least help their push to soften the split. It reduces May’s already-small majority in the House of Commons, limiting her ability to take risks and the chances she will call an early general election.

Going Soft on ‘Hard Brexit’?

The government may already have been mollifying its stance.

Thursday saw Brexit Secretary David Davis signal the U.K. might be willing to pay the European Union to ensure “we get the best possible access for goods and services to the European market.” He then said while the government is “ending free movement as it has operated before,” it “won’t do so in a way that is contrary to the national and economic interest.”

Meanwhile, Trade Minister Greg Hands told Bloomberg’s Tim Ross that Britain could stay in the customs union even after leaving the EU.

Hands suggested the government may seek to stay in the customs union for certain products, as he sought to explain May’s comment in November that membership isn’t “binary.”

The customs union allows members to trade tariff-free with each other and enforce the same duties on other countries. The single market is broader and allows for free movement of services, capital and people too.

“You can choose which markets, which products the customs unions affect and which they don’t -- so there isn’t a binary thing of being inside the customs union or outside of the customs union,” Hands said.

The question is how willing the rest of the EU is to allow piecemeal access to the bloc, having repeatedly warned it won’t allow the U.K. to “cherry pick.” If it does, it’s likely to come at a financial cost for the U.K.

Why May Wants a Day in Court

The government returns to court next week in a bid to secure the power to trigger Brexit by itself rather than asking Parliament.

While some have suggested the prime minister should just allow a parliamentary vote, Bloomberg’s Alex Morales outlines the reasons she’d rather avoid one, and so is chancing her luck that the Supreme Court backs her stance.

Chief among them is a reluctance to reveal her negotiating hand, as well as concerns that her plan to start the countdown to Brexit in the first quarter could be jeopardized by a vote. There’s also a chance fault-lines in May’s own Conservative Party would be revealed.

“The government is throwing down a very clear sign about who wields power in modern Britain -- the government and not the courts,” said Matthew Flinders, a politics professor at the University of Sheffield. “It’s also an important part of Theresa May’s ideology that she wants to be seen as a strong, powerful politician who makes commitments, follows through on them and isn’t willing to be frustrated by outside forces.”

Brexit Bullets

• Overseas companies cut U.K. investment for the first time in eight years in 2015, data show
• Construction pickup overshadowed by soaring cost pressures 
• Foreign Secretary Johnson agrees with Trump that NATO members outside the U.S. need to pull their weight
• Germany’s Merkel says EU won’t “compromise” on four freedoms
• Ireland cautions banks against opening token offices in Dublin
• UBS combines wealth units in Germany to secure passporting rights
• Hollande’s exit gives Valls space to run for French presidency next year

And Finally...

Not only has Brexit forced up the cost of Christmas dinner (see Wednesday’s Brexit Bulletin), but it has also hit the present-buying plans of Britons. About a quarter of 2,000 people surveyed by PricewaterhouseCoopers say their gift shopping will be affected by the decision to leave the EU.

Seventeen percent said Brexit is set to have a considerable impact on their Christmas outlay, while about 8 percent expect a slight effect. Millennials and Londoners in particular are set to have their holiday season dampened, showing that groups who were most strongly in favor of Britain remaining in the EU have the biggest festive reservations.

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To contact the author of this story: Simon Kennedy in London at skennedy4@bloomberg.net.

To contact the editor responsible for this story: Emma Ross-Thomas at erossthomas@bloomberg.net, Andy Reinhardt