Brexit-mania hotting up - well, it is (the old) 'exit date'!

Friday, 29th March 2019 14:19 - by Shant

Oh, what a tangled web we weave.  Many people, let alone investors will have been left baffled by the degree of entanglement inside parliament, in trying to find a resolution to the Brexit process - which as MPs admit - is leading to a neverending period of uncertainty for British business who continue to hold back on investment. 

Covering UK assets as I do, it is clear that the political mess that we (in the UK) find ourselves in is front and centre in considerations, with economic factors now well and truly on the back burner as we look for clarity in the road ahead - with or without the EU.  That may sound a little incongruous, but such has been the machinations of the variety of voting procedures that at this stage, the only thing we know is that there is a majority in the House of Commons to avoid no deal and little else.  

While this has gone some way to alleviate the fears that the UK is unlikely to crash out, fresh events have shifted the odds of crashing out of the EU accidentally, higher.  As a measure of sentiment, the Pound has been as strong an indicator of the probability of Brexit outcomes as it has ever been, and this was perhaps to be expected as we come squarely face to face with crunch time.  Indeed, were it not for the request for an extension from the EU, the UK would have been leaving the EU today!  

So what has happened to darken the outlook?  In essence, the indicative votes.  Earlier in the week, and off a motion from the Conservative backbenches, parliament embarked on a series of non-binding votes on a number of measures to see if there could be some kind of consensus on how to move forward with the leaving process.  Among the options were that of a customs union, a second referendum, Common Market 2.0 and a revocation of Article 50.  Of these measures, the customs union (submitted by Kenneth Clarke) lost by the narrowest of majorities, with only 8 votes between the warring factions.  Naturally, the entire process was under the influence of heavy tactical voting, with most of the options suffering from a significant number of abstentions.  Consequently, the lack of parliamentary cohesion has led the market to conclude that we are no closer to finding an agreement.  

We now find ourselves looking at the government trying to break down the voting process on the established 'withdrawal agreement', which as we all know, has been rejected twice by significant majorities on both occasions.  However, in breaking up the withdrawal agreement and the political declaration, the government has been successful in bypassing the ruling given by the Speaker of the House.  This stated that the government could not re-table the same motion - the meaningful vote as it was earlier in the year - unless there were significant changes.  The removal of the political declaration does this and the Attorney General confirmed this morning.  

However, the withdrawal agreement will still need to be passed through primary legislation in order to embed this into UK law.  Today's events are solely for the purpose of securing the 22 May withdrawal date as stipulated by the EU - a process which as many of you will appreciate, has angered both hardliners in the party as well as those on the opposition benches arguing that this is a roundabout way of trying to get Theresa May's deal back in the House, and back in favour amongst a growing number of MPs who are coming round to the idea of supporting the deal.  

There is a long way to go if we are to get to the next stage of the negotiating process with the EU, so Friday's events may not prove as pivotal as some would believe, though a positive vote for the deal this week - by 11 pm this evening - would go some way to breaking the deadlock - not least of all, due to the inability to find consensus on the indicative votes earlier in the week.  Next week, on Monday in fact, parliament will be conducting another series of indicative votes, though, at this stage, it is unknown as to whether this relies on events on Friday evening - one would have thought not.  As such - and as unhelpful as it is - the uncertainty factor may well continue into the week ahead, though I continue to believe that the vote to take no deal off the table earlier in the month was a seminal moment and that the odds are stacked towards a softer Brexit.  No surprise then that the withdrawal deal is looking more palatable to the hardliners - albeit not the DUP.  

The FTSE has been showing little nervousness throughout recent sessions, and while this may have significantly been fuelled by a Sterling sell-off, there remains scope for optimism, as this inverse relationship could be challenged on a potential breakthrough in finding a way forward.  Indeed, some may view UK stocks as a safer way to navigate these difficult time, with Pound weakness proving net supportive - something which will also attract foreign investors looking for value in the current economic environment.   

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.