The UK 'May' have played it all wrong.

Tuesday, 11th December 2018 12:47 - by Shant

Dominating the UK headlines, the Brexit saga is hard to detach oneself from and in yet another turn, Theresa May decided to pull the plug on the meaningful vote which was scheduled for Tuesday evening at 7.00pm.  After the all the hype and expectation over what was widely anticipated to be a rejection of the deal, the process was perceived to be getting closer to the 'endgame' - however unpalatable some of the remain options proved to be. 

The opposition benches have had a field day with the under-fire PM, who now surely faces a vote of no confidence unless her latest trip to Europe can pay dividends in the form of some assurances on the Irish backstop, which has been the sole factor in the resentment towards the EU deal on the table.  

Parliament is now insisting that a vote on the deal be 'ensured' ahead of the Christmas break, in an attempt to remove some of the uncertainty which is hurting business and restraining investment.  This may sound counter-intuitive given the fact that if/when this deal were to be/is voted down, we are back to square one.  In essence, we are, but with the Labour and the SNP calling for a People's vote at every opportunity, the balance of power with the House of Commons is also firmly in favour of avoiding a no deal.  As such, there seems to be an underlying belief, that this overriding consensus (to avoid a cliff edge Brexit), will ultimately translate into a softer, business-friendly outcome.  The drawback in this is that if effectively weakens the UK's negotiating hand.  If the UK is resigned to avoiding a no deal scenario, then one should assume the EU will take this as a position of strength. Let's not forget that Europe is still keen for Britain to reverse its decision to leave, and delivered a timely option to revoke Article 50 yesterday as a result of cross-party efforts of a handful of MPs led by the SNP.  

Indeed, Theresa May has been threatening the prospect of a no Brexit scenario as a direct warning to the ERG camp within the Tory party, though this was doomed to fail given fears that the backstop could leave the UK tied to the customs union and EU rules indefinitely, as was eventually revealed in the legal advice document initially presented by the Attorney General last week.  This fiasco was another faux pas on behalf of the government, who are now being accused of a contemptuous underbelly in everything they do, with the delay of today's vote adding to scorn on the cabinet.  It is not hard to see that the PM is now skating on very thin ice. Sterling takes the brunt of sentiment as it did in the aftermath of the referendum result, and against the Dollar, we are now back to levels reminiscent of the panic seen a little over 2 years ago.  MPs were quick to point this out, and it seems parliament is a little more aware of the impact exchange rate weakness, which naturally hurts major importing nations.  

Increasingly, few - other than the Tories - can see past another referendum (whatever the format) being the most plausible way out of this current impasse.  The argument that this represents a betrayal of the democratic process seems to be wearing thin - based purely on the rhetoric in and around Westminster - though given time is running out, the logistical problems of fitting another vote in before the end of March increase by the day.  Once again, I note this purely as an indication of the mood circulating the markets, watching the Sterling exchange rate as the primary gauge. 

The cabinet still insists that they will not agree to allow a second vote put to the people, though based on the number of retractions (of statements of intent), it is fair to say that there is plenty of scepticism over the PMs red lines - internal or otherwise.  If she threatens a no Brexit, then surely the door to a People's vote is not completely closed.  How else would Brexit then be 'cancelled'.  Consequently, we are left to read between the lines, and with so much at stake, this is essentially all that one can do at this point. 

UK plc is desperate for direction, and yesterday's events effectively mean that we all have longer to wait on what comes next.  As above, time is not on the government's side, so the PM's appeal to the EU really is the last throw of the dice. 

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.