Brexit goalposts change again - and are likely to do so a number of times over the next few weeks.

Friday, 7th December 2018 07:25 - by Shant

In recent weeks, I have somewhat stuck my neck out in terms of what to expect from the negotiations between the UK and the EU, with the current deal drawing plenty of criticism within parliament due to the open ended-ness of the backstop agreement. 

In spite of this, the debate on the deal has provided a fresh insight into the mood within the Commons.  Tuesday's session saw a motion to hold the government in contempt (of parliament) for not revealing the full legal advice from the Attorney General, which has since been released and confirms that the UK could remain indefinitely inside the customs union and under EU rules on trade if the backstop is triggered and negotiations continue ad infinitum.  This will naturally not sit well with the hard-line pro Brexiteers, though listening to the ongoing debates through the day, moderate Tory members are also lining up to vote against the deal.  It looks highly unlikely that the PM will manage to get enough support to win favour, and she has since resorted to scare tactics to win round ardent proponents of vote-leave by suggesting that the repercussions are that we get no deal (obvious) or no Brexit at all - the latter being the kicker for the 'leave'camp!

However, Tuesday night also saw a motion passed to allow parliament to have its say on the Brexit process beyond a 'no vote' next week, and naturally, the opposition benches jumped on this, as this effectively strengthens the chances of a people's vote on the final deal and/or a second referendum.  It should come as no surprise to hear Theresa May vehemently opposed to this, as any PM risks the backlash of the population who - on balance - made their initial decision in 2016.  Meddling in the democratic process would be undesirable for any PM from any party in power at any given time, and opposition to this is therefore of limited significance in terms of evaluating component Brexit risk at the current time. As such, the option of staying inside the EU is increasingly looking like a better option irrespective of the damage this would have on the political establishment, as evidenced by the widespread agreement through parliament that a no deal cliff edge withdrawal should be avoided.  

Consequently, Sterling and UK assets are now moving to the tune of the undercurrent of political rhetoric beyond the balance of power of those in favour of the current deal and those set to reject it - as looks painfully obvious at the present time.  This is not to say that when the motion for the deal is rejected next week, we will not see a negative impact on domestic markets.  There will naturally be a reaction to some degree, but any material move then hinges on which way parliament looks to proceed after the current deal is rejected.  It is worth noting that the motion to allow parliament to have 'a say' on future proceedings is not legally binding, though naturally has political significance.  A rejection would 'de facto' put us on course for a no deal outcome, though parliament would then have to be quick in determining a fresh course of action which means the latter part of next week will be a highly volatile period in the Commons as well as the market. 

This ultimately leads us to believe (or hope) that common sense can prevail within the lower House and/or in the EU and a willingness to show a little flexibility in their current stance.  Thursday's rhetoric by the EU's chief negotiator would suggest not.  Once again, on behalf of the EU, Mr. Barnier has insisted that this is the only deal on the table, only his wording was a touch sinister this time around in claiming this is the only deal available for an orderly withdrawal.  The latter qualification is somewhat troubling in that it may lead some to believe that the EU is indeed prepared to 'play chicken' and see the negotiations through to the bitter end with the view that the UK will indeed, be the first to blink.  It is a dangerous ploy and would question the notion - from both sides - that there is a combined determination to avoid an acrimonious divorce which will be hugely disruptive for the UK logistically, as well as damaging for EU exporters who enjoy a sizeable trade surplus with Britain.  

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.