Surviving Brexit

Source: SmartIM

In our last note we raised the issue of ‘Brexit fatigue’, something that we are feeling to a degree, pointing out that the effect has been exacerbated by the media’s tendency to link all events to Brexit, even where the UK’s planned departure from the EU is arguably not a major factor. With reporters making such poor causal relationships, and the resulting overload of Brexit news, it is tempting to shy away from the subject as a writer. However, the last couple of weeks provided some points of interest too good to pass up, as they provided the opportunity for some ‘tongue in cheek’ analogies, with some light relief around the process being much needed.

This weekend at Twickenham saw one of the most remarkable rugby matches ever. For those not keen watchers of the sport, England led Scotland by 31 points to nil before Scotland scored six unanswered tries to lead 38-31, only for England to score a try in injury time to salvage a face-saving 38-38 draw. We could not help but see the parallel to the Brexit process, with the UK playing the role of England (apologies to any Scots who are, of course, part of that same UK: England are only used as the UK for the purposes of analogy!). After the UK’s EU referendum in which a majority voted to leave the EU, the UK Government, and Theresa May in particular, made bold statements about how they intended to extract a good exit deal from the EU, as the latter would be very keen to accommodate the UK’s needs. However, as negotiations progressed it became increasingly clear that things were not going so well and the UK Parliament, and the governing Conservative Party in particular, has found itself in total disarray. After multiple votes in the last two weeks, and an obvious loss of authority over her own party’s Members of Parliament (MPs), it remains to be seen if Theresa May can score that injury time try to salvage something from what would appear to be the jaws of defeat. However, after the early promises, it is hard to see how even such an achievement would be greeted with anything more than relief, as any chance of touting a deal as a victory would appear to have gone. This is a feeling that any England rugby fan will know well after Saturday’s game.

The Conservative Party’s problems over Brexit are no great surprise, as it has been the single most divisive issue for them for a generation. However, one of the many votes held in the UK Parliament last week gave an insight into the challenge that the current situation presents to the opposition Labour Party, with their particular problem revolving around a possible second referendum. The party’s conference passed a motion last year stating that such an option should be kept on the table. However, what exactly that referendum would ask is the source of much disagreement within the Parliamentary Labour Party. Sir Keir Starmer, Shadow Brexit Secretary, said at the conference that any such vote should include ‘Remain’ as an option. However, this has been contradicted by other senior Labour figures, including Shadow Chancellor John McDonnell, who has said that any such vote should be on the terms of the deal alone and should not be a re-run of the 2016 referendum. Labour Leader Jeremy Corbyn has gone to great lengths to avoid taking any clear position on the issue, saying that the solution is a General Election, so debating the details of a second referendum is moot. However, we may have got some insight into why he has fought so hard to avoid such a debate last week. During a vote on a Parliamentary amendment calling for a second referendum, Corbyn instructed his MPs to abstain. The official line was that it was too early for such a vote. However, 41 Labour MPs defied their leader, with 24 voting for the amendment and 17 against. The number of rebels is smaller than the number of Brexiteer Conservative MPs that have been defying their leader and have, to date, stopped her deal from passing. However, the roughly even split of Labour rebels is the interesting point. Whilst many Labour MPs are instinctive Remainers, and some felt that they had to support the idea of a second vote even if instructed not to do so, a number represent constituencies that voted very clearly to leave the UK and feel obligated to follow through on the wishes of their voters, even if they do not agree with the decision. With a number of these constituencies being in Labour heartlands in the North of England, this has the potential to split the party in a way that is just as significant as the split within the Conservative Party. Add to the mix the fact that Corbyn has a long-term dislike of the EU, having criticised the move towards what he called “a European empire”, and the problems facing the party are clear. Therefore, whilst he has managed to avoid that division becoming high profile so far, it remains to be seen how much longer that position remains tenable. Ironically, if Theresa May were to get her deal through at the third time of asking, and it seems likely that she will try, he may well avoid the issue ever breaking out into the open.

Finally, it seems to be dawning on voters and commentators alike that, even if the chaos surrounding the UK’s EU Withdrawal Deal is resolved, this is not the end of the process. The agreement sets out the terms under which a trade deal will be discussed, with that work still to be done. This has a feel akin to the modern Batman film franchise, when the fifth film in the series was (somewhat counter-intuitively) named ‘Batman Begins’. Of course, that film was a ‘prequel’, explaining how Bruce Wayne came to be Batman. By contrast, agreeing a Withdrawal Deal would not take us backwards, even though it would arguably be as much the beginning of something as it is the end. However, with anything at this stage being possible, including a second vote of some form, going ‘down the big snake’ back to the beginning is still possible. Either way, for anyone hoping that this will all be over soon, this is not the case, whatever direction the UK Parliament takes.

The information provided above is for Professional Advisers: All data has been sourced from Lipper. Any investment must be made in conjunction with reading the relevant KIID or Investment Mandate. Clients should be aware that the value of investments and the income from the may fall as well as rise and they may not get back the amount originally invested. Investors should note that the views expressed and information given were current at the time of publication but may no longer be so and/or may have been acted upon by the Investment Manager already. Source SmartIM