- U.K. leader Theresa May has seen her Brexit withdrawal deal with Europe rejected by the U.K. Parliament.
- The 230 vote defeat is thought to be the largest in U.K. political history.
- Sterling initially fell before rising following May's stunning defeat.
Defeat for the U.K. government over its proposed Brexit deal has thrown the country into yet more political uncertainty.
U.K. Prime Minister Theresa May had placed a motion before lawmakers in the lower house of Parliament, asking them to rubber stamp her withdrawal agreement with the European Union.
The bill was rejected by 432 votes to 202. The 230 vote defeat is thought to be the largest in U.K. political history.
Following a controversial amendment, the U.K. government now has just three working days to map out a new plan of action. With Parliament not set to sit on Friday, that means a new plan must be agreed with Europe and presented to U.K. lawmakers by the close of business on Monday January 21. May confirmed in Parliament that she would adhere to this. Amid the confusion there appears to be six potential outcomes, some of which could occur simultaneously.
The size of the defeat now makes it questionable whether the prime minister can tweak the deal to change the minds of lawmakers. But May and her team might believe there are a significant number of MPs (Members of Parliament) close to switching sides, so watch to see if she dashes to Brussels in an attempt to wrestle further concessions from Europe.
One key stumbling block is the Northern Irish "backstop," which acts as a safety net to prevent any hard border with the Republic of Ireland, which is remaining as an EU member country. Many of May's critics see this provision as a way in which Britain could be tied to the European Union indefinitely.
The EU has attempted to offer assurances that this would not be the case, but the Northern Irish party that currently supports Theresa May's party in the U.K. government has said it does not go far enough.
The leader of the opposition Labour party, Jeremy Corbyn, has said he will put forward a motion of no-confidence in Theresa May's government on Wednesday. It's expected that a result of that vote will be known by 7.00 p.m. London time on Wednesday.
Should a majority of lawmakers from across all the U.K. political parties express "no confidence in Her Majesty's government," then the current Parliament would have 14 days to agree a new arrangement that would govern the country.
If that isn't possible, then a General Election is likely. The EU has said that a change in U.K. leadership would not change its stance.
The June 2016 referendum on membership of the European Union was officially a non-binding advisory poll, but lawmakers promised the public they would act on its result.
Momentum has grown for a second referendum which proponents argue would gauge the public's appetite for Brexit, now that people have a clearer idea of what it means. Critics of a second vote have said it would ignore and insult the democratic process of the original vote.
Former Labour Prime Minister Gordon Brown told CNBC Monday that he believes another referendum is more likely.
"I think at some stage there will be another referendum. I cannot say when it will be, and I would not like to predict it would be in the next few weeks. But I think at some stage you will have to resolve this issue and finally come to a conclusion about the details and not just the principle of Britain's relationship with Europe," Brown said.
There are some, particularly those from opposition parties, who believe a fresh negotiation between the EU and U.K. is still possible.
Britain and Northern Ireland are set to leave the European Union in less than three months and so any attempt at major surgery to the existing deal would likely require more time.
That would mean an extension of Article 50 which is the legal means by which a country leaves the Union. May's triggering of the clause in March 2017 set off a two-year countdown to Britain's exit on March 29.
The chief investment officer at Barclays Investment Solutions, William Hobbs, told CNBC Monday that currency traders had recently raised bets on an extension to that countdown.
"The way that sterling reacted last week to rumors that you're going to see an extension (to Article 50), showed that there is a lot priced in to the market already."
An extension would have to be approved by the EU's other 27 members. It's unclear in what circumstances they would approve that and by how long they would agree to extend it.
Any move toward a second referendum or an extension of Article 50 would increase speculation that the U.K. will not actually leave the EU. On Monday, May delivered a speech that claimed such an outcome would result in "catastrophic harm" to people's faith in the British political system.
Downing Street has claimed that the possibility of lawmakers managing to block Brexit is now more likely than the U.K. leaving the EU without any sort of deal.
British hedge fund veteran Crispin Odey, who is a backer of Brexit, told Reuters last week last week that he thought Britain would now stay in Europe.
"My view is that it is not going to happen. I just cannot see how it happens with that configuration of parliament."
If the EU won't budge, and U.K. lawmakers can't sign off on a deal, then the possibility of no deal looms large.
Several analyses have warned of the extreme economic damage that leaving Europe without any deal could bring. A Bank of England report in late 2018 said if such a scenario were agreed, then unemployment could rise to 7.5 percent, house prices could fall 30 percent, sterling might crash, and the economy could shrink by around 8 percent over the course of a year.
While there does exist a hardcore of "Brexiteers" who want Britain and Northern Ireland to leave the EU with no deal, it is generally agreed that this is a minority view within Parliament.