The latest on Brexit

15 March 2019

3 minute read

Following the latest Parliamentary vote on the Withdrawal Agreement, we explore what’s next for the political process, the UK’s economy, and capital markets.

Who's this for? Investors with basic investment knowledge

What you’ll learn:

  • The outcome of the Parliamentary vote on the Withdrawal Agreement
  • What’s next for the political process, the UK’s economy, and capital markets
  • Points for investors to remember

Surveys lead us to believe that a proportion of the UK’s population believe that we’ve already left the European Union. However, no one in Parliament can possibly believe that after another bruising night for the government this week. The Withdrawal Agreement, garnished with a few extra promises surrounding the controversial backstop, was rejected for the second time by the UK’s supreme legislative body. Below, we explore what’s next for the political process, the UK’s economy, and capital markets.

What next?

This week we’ve seen Parliament vote against Theresa May’s deal and exiting without one, and approving an extension to Article 50.

It’s now up to the EU to decide how long an extension to offer – if they agree to offer one at all. There are obviously complications here. Anything beyond the European Parliamentary elections and the UK will have to offer up and elect European Parliamentary representatives of its own. If the extension to Article 50 is long enough, it may even provide sufficient space for fresh elections and/or even a second referendum.

This will provide Prime Minister May with an opportunity to have a third try at passing the Withdrawal Agreement in its current format, reasoning that the higher likelihood of no Brexit could force many of the more committed Brexiteers to change their minds.

What about the economy?

The world economy has been slowing, particularly over the last quarter, for a range of mostly unrelated reasons. The latest batch of economic indicators would argue that this slowdown is in the process of bottoming out. The efforts of China’s policymakers to nudge the economy back up to target seem to be bearing fruit. Meanwhile, the underlying trend in the US still looks reasonably healthy. Continental Europe is still finding its feet, but again the trend looks a bit less worrisome than some have been arguing. All of this points to a more helpful external backdrop for the UK in coming quarters.

Points for investors to remember:

  1. Exit without a deal is still possible, but remains unlikely

    Parliament have indicated they will oppose exiting without a deal. That still does not mean that such an exit can’t happen, just that the UK’s Parliament currently doesn’t want it. The significant uncertainty that would accompany such an exit would, at the very least, be obstructive to the UK economy. If the unlikely did happen and the UK was to exit without a deal, we should be prepared for significant short-term disruption. Sterling would likely be the medium through which investor angst and downgrades to the UK economic outlook would be expressed.

  2. Whatever the outcome, the world will keep turning

    The UK accounts for less than 5% of the world’s GDP, whilst Continental Europe, for example, accounts for 20%. Continental Europe’s outlook would, of course, be dented by a severe downturn in the UK’s economy, if that did materialise. Nonetheless, it continues to be the US economy that sets the pace for the world and its capital markets. The latest data we have on the US private sector suggests demand remains robust. The risk of an imminent US recession remains unlikely to us.

  3. Long-term investing has little to do with politics or recessions

    The next recession, whether or not the UK leaves the EU, and what comes next from President Trump, are little more than noise. To us, now looks as good a time as any to enter that long-term bet, or just stay the course.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

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