Wednesday, 2nd October 2019 11:05 - by Shant
Yesterday we entered a month which define the UK outlook for years and perhaps decades to come. At the end of October, the UK - by default - leaves the EU, and unless there is a deal in place between now and then, it will be a no-deal exit and one which MPs, and pro EU proponents from all quarters will be dreading. Today - Wednesday the 2nd of October - Boris Johnson will address to the Conservative party conference to outline his vision for the future, including his firm intent on delivering on the democratic will of the electorate, after which he will submit the details of his proposals of an alternative to the Irish backstop, which has been the root cause of the Brexit impasse.
The crux of the latest plans to replace the current backstop within the withdrawal agreement is to set up customs posts inside both Northern Ireland and Ireland, thereby creating a clearance zone which does not put the actual border under stress. So far, the response (to the reports, if assumed to be true) from Ireland has been cold to say the least, with Foreign Minister labelling the plans as a non-starter, so before the proposals have seen the light of day, cold water is being poured, with the inclusion of technology and possibly a time limit also scorned at this stage.
As such, the odds of reaching a deal by the middle of the month look slim at best. As per comments from a number of government officials, this will be the final offer to the EU, after which time, the markets will be reverting to the default position of leaving the EU without a deal with the Prime Minister refusing (at this stage) to go back to the EU to ask for yet another extension. Mr. Johnson has been unequivocal in his denunciation of what he unapologetically calls the 'Surrender Act', which was passed through the House of Commons before parliament was prorogued last month.
The Benn Act - the actual name - requires the PM to ask for an extension to the Article 50 negotiating period if MPs have not approved a deal through a meaningful or approve leading without a deal by the 19th of October. The PM will be required to send a specifically worded letter (included in the Act) asking for an extension to Article 50 until the 30th of January. It the EU agrees to this, or an alternative date, then the PM must also agree. The bill received Royal Assent on the 9th of September, the day before the parliament recess. No surprise then that we hear of suggestions that members of the government have been asking members not to agree to a said extension, though it is clear that Number 10 is intent on pulling the UK out of the EU on the 31st (of October) with or without a deal.
Focusing on the market at the moment, odds for a no-deal and a delay have been the prominent drivers of sentiment in recent weeks, with little to quantify in terms of the PM's threat to refuse asking for an extension. Feeding into this are, or will be, growing expectations of a general election if or when a delay is achieved, at which point we can assume that the country will be facing a de facto second referendum as parties on all sides will be canvassing primarily on Brexit. Given the recent focus on finding a deal before the end of this month, election risk has been sidelined it seems, but once it returns, there is the not-so-small factor of the Brexit party, who made sweeping gains in the European elections earlier this year. Despite the clear opposition to a no-deal exit - or indeed any exit (LibDems and SNP) - one cannot rule out the risk that the UK will leave without a deal at some stage over the coming months, perhaps even a year.
This morning, the FTSE 100 is taking a nosedive on what we can only assume to be Brexit related fears, with broad-based losses seen across all sectors. At the time of writing, all stocks but a handful are in the red, with the index shedding 200 points from the highs seen yesterday. The month of October (historically significant) is once again shaping up to be a volatile time for stock markets - certainly here in the UK.
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.