Alastair George, Chief Investment Strategist
The obstacle in the way of the amended Withdrawal Agreement (“the deal”), a document supported by both the EU and PM May, remains the UK Parliament. However, in our view, those accusing the UK Parliament of irresponsibility may as well level that charge at the institution of parliamentary democracy, described famously as the worst form of government except for all the others. While the currently chaotic scenes may be unnerving, there appears little appetite for compromising long-standing UK democratic principles, arcane or not. A week is a long time in UK politics and the prospects of an orderly exit on schedule are now clearly receding, compared to our earlier thoughts. Even so, an extension to Article 50 remains more likely than no-deal or Article 50 revocation and a way out of the impasse is also within the EU’s power.
The intense pressure on UK MPs may even now bring to fruition a vote in favour of the deal, if it can be amended once more to allow a Parliamentary vote. At times during the past seven days, PM May appeared within sight of the finishing line with the DUP and certain Eurosceptic MPs, who were indicating that their opposition was wavering.
However, following the Speaker’s intervention, which made plain the Parliamentary prohibition on voting on the same motion twice, momentum for the deal has drained away. There are quite naturally few political benefits to expressing support for a theoretical motion which might never happen.
If the government strategy is to try to deliver on the deal, we are perplexed by PM May’s Wednesday evening address which offered nothing which had not already been previously said and was laden with pressure on MPs as if they were recalcitrant teenagers, which they are clearly not. The purpose of this address remains unclear to us; we can only speculate PM May is under pressure to keep demonstrating to the EU her best efforts to get the deal through.
Away from the emotive rhetoric, it would also appear wholly within the power of the EU to facilitate a further UK Parliament vote on the deal, simply by proposing an amendment or addition to the deal that represents in the eyes of the Speaker a substantial difference. Furthermore, as the second vote demonstrated, the changes would not necessarily have to be radical. It is notable that no such proposal has been forthcoming and in addition explicitly ruled out by President of the EU council Donald Tusk yesterday. Even so, investors should not in our view rule out an initiative from the EU at the last minute.
We expect an extension to Article 50 to be agreed by the EU, rather than a negotiation failure of historic proportions, such as an “accidental” no-deal Brexit on March 29, given the expressed views of both the UK Parliament and the EU. From there, the way out of the impasse is an amendment, perhaps modest in scope, agreed with the EU which can pass the UK Parliament, which is not exactly new news. We view markets as correctly pricing in a modest discount for sterling and UK equities, which will remain in place until the uncertainty is resolved.