Brexit outcomes multiply again

Wednesday, 13th March 2019 14:36 - by Shant

The writing was on the wall once the Attorney General Geoffrey Cox revealed that the risk of being held inside the customs union in perpetuity was effectively little changed, and once the DIUP (who support Theresa May's government) decided against the deal and Monday's concessions, it was widely acknowledged that the current deal was going to fail miserably.  While Theresa May is under pressure for government failures, it has to be said that wit parliament has vocally insisted that the UK avoid a no deal outcome - which is likely to be passed as a motion this evening - her hands have been tied in getting a better deal than the one offered to parliament earlier this year and again on Tuesday evening.  

From here, we are now left with a highly likely extension to the withdrawal date, which is now a little over 2 weeks away.  This will do little to arrest the detrimental uncertainty factor which has been hampering UK business, and I still expect some of these underlying currents to surface in the domestic data in the months ahead.  At the start of the week, we got the January growth figures which pointed to a 0.5% rise in GDP on the month, which is no doubt an impressive result under the circumstances.  Manufacturing also recorded a healthy month, but just how long can business continue with this neverending cloud hanging over the UK.  

Well, things are coming to a head and my baseline scenario has never changed through the past 3-4 months, in that we will get some form of a deal to facilitate an orderly withdrawal - on whatever date this happens to be.  Indeed, given the perseverance of the ERG to get a complete break from the EU, we now also have to factor in a higher probability that there is no Brexit at all, and judging by some of the faces of the Brexiteers in the aftermath of Tuesday night's vote, it was telling that these fears are now starting to dawn on MPs taking that firm position.  

There is clearly no appetite for a no deal, and as noted above, Wednesday night's vote is fully expected to confirm this, but as many - including the EU - say, we need to see what parliament wants to vote for and not for what it does not want.  Translating this vote in some form of effective action is what most of us now want to see, but this will be easier said than done and UK politics is now perhaps at its lowest point given the lack of decisive action.  

Gaining traction behind the scenes is the Common Market 2.0 which is said to have cross-party backing, though this will be fiercely rejected by the ERG going forward.  This proposal is very much a soft Brexit yet still brings the UK out of the political union as well as ending the jurisdiction of the ECJ.  While this would imply free movement, there would be specific measures to safeguard control over immigration, ie in the event of 'serious economic, societal and environmental difficulties'.  Nevertheless, the overriding theme which has been unmistakable in the Brexit process in recent weeks is the fact that the UK will avoid a no deal outcome.  That it has taken such a convoluted route to get to this point is a testament to the diversity of interests in parliament, though I would have expected this to have been the case given the momentous change in circumstances the UK is embarking on.  

In conclusion, UK stocks may be set for a firm boost in coming weeks, with no lesser than the Norwegian Wealth Fund reporting that it will be boosting its portfolio with a greater weighting of UK assets, though this looks set to be undertaken irrespective of the developments in the relationship with the EU.  Combined with pent up investment projects in the pipeline, we suspect there will be a surge of interest from foreign investors as the Pound is also at historically low levels though this is also set to recover well in the next few months.  Investors would, therefore, be better placed to look for companies with a more domestic focus, avoiding the impact of currency appreciation which would affect bottom line Dollar profits.  

 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.