Brexit – What Now?

With the humiliating defeat in Parliament a few days ago, Theresa May has little time to sketch out plan B, which she must present to Parliament by Monday the 21st January. In the meantime, the rest of the World can only speculate. Just one indication so far: she has said that time is now ripe for bipartisan cooperation and has opened discussions across Parliament. One wonders if she shouldn’t have done that a long time ago.

She (and many others) might be missing a crucial point, though. Many in this country behave like Brexit is a tombola where you can pick your prize from all shelves if you win, but that is not exactly how the EU works. During the Brexit negotiations, on one side of the table you had the UK. On the other side of the table, you had no fewer than 27 countries. According to informed sources of mine, it took an extraordinary effort to get all 27 to support the deal that has just been voted down in Westminster, and to improve that deal will be next to impossible. Some countries already believe the UK got away with murder.

On the other hand, according to another source of mine (a Westminster insider), there is little appetite amongst MPs for a no-deal outcome, so something will have to give. The most likely to yield first is the scheduled exit date – the 29th March – which will most likely be delayed now. Whether it all ends with a second referendum (a People’s Vote as many like to call it) is too early to say.
Having said that, there is no question that the idea of a second referendum is gaining momentum but, as we have learned over the past few months, it is hard to secure a majority in Parliament for anything Brexit-related at the moment. However, the combination of Theresa May’s Brexit deal being voted down and the failure of the no-confidence vote has increased the probability of a second referendum quite significantly.

Sterling strengthened modestly after May’s defeat and continues to be remarkably resilient, considering all the uncertainty, meaning that financial markets agree with me that a no-deal exit from the EU is very unlikely. However, I don’t expect any clear directionality on sterling until there is more clarity.

Niels C. Jensen
Quartet Investment Managers