As many of our clients know, we send out occasional updates whenever there are significant events. We know there are times when our clients like to be updated and when they want some fundamental questions answering: ‘what’s happening, and what does it mean for my savings and investments?’
As you will see from the title, this one is on Brexit. It has been, by some distance, the most difficult update we have ever written. We are starting it on Thursday morning, September 12th and have no doubt at all that by the time it ‘goes to press’ it will have been revised several times as events change. It is not so much hitting a moving target as hitting several moving targets. In the dark…
Nevertheless, we appreciate that our clients may have genuine concerns and it is our job to address those concerns. So let us try and answer the important questions: what has happened, what is likely to happen and what will it mean for your savings and investments?
On the 23rd June 2016 – approximately 1,180 days ago – the UK voted to leave the European Union. The margin was 52% to 48% and, after David Cameron’s resignation, Theresa May became Prime Minister and famously declared that “Brexit means Brexit.”
Countless trips to Brussels and three failed attempts to get her Withdrawal Agreement through the Commons later, Theresa May stood down and Boris Johnson became Prime Minister on July 24th this year. Johnson has repeatedly said that the UK will leave the EU, “do or die,” on October 31st – the latest date agreed with the EU after several delays to the original leaving date of March 29th.
So far, Boris Johnson’s Premiership has been beset by problems. He has lost his parliamentary majority following the withdrawal of the Conservative whip from 21 rebel MPs, and been defeated several times in the Commons. There, MPs have passed a bill – dubbed by Johnson the ‘Surrender Bill’ – to take a ‘no deal’ Brexit off the table. Johnson and his chief of staff, the controversial Dominic Cummings, seem unworried by this and continue to insist that leaving the EU without a deal remains a possibility.
Meanwhile, the Prime Minister has prorogued (shut down) Parliament in readiness for an October Queen’s Speech. This decision was challenged in the courts last week and the Scottish Court of Sessions has declared his prorogation of Parliament illegal, although this will be tested in the UK Supreme Court in the coming week.
To describe the current situation as chaotic is one of the year’s great understatements. Neither did it become any clearer over the weekend as David Cameron – albeit with a book to sell – tore into Johnson and Michael Gove, and the Liberal Democrats promised that if they won an election they would simply ignore the Referendum result and revoke Article 50.
So – with a little over 40 days to go until the UK is scheduled to leave the EU – let us try and pick our way through the chaos and answer those questions we think our clients would like answering.
Is the UK likely to leave the EU on October 31st?
In the Conservative leadership campaign, Boris Johnson consistently stressed that the UK would leave the EU on October 31st. Despite parliament voting to take the option of no deal off the table and also passing a bill requiring that he ask the EU to extend the date, he remains adamant that he will not seek an extension. “I would rather be dead in a ditch,” has been his much-quoted response.
This morning (Monday) sees Boris Johnson fly off for a working lunch with European Commission President Jean-Claude Juncker, with both the Telegraph and the Express reporting that the PM is ‘confident he is closing on a deal.’ He is also – according to the BBC – continuing to rule out an extension past October 31st.
At first glance, this seems an impossible circle to square: even if Johnson were to do a deal with the EU, could he get it past parliament, where so many MPs are opposed not just to ‘no deal’ but to Brexit itself. And could he satisfy the ‘Spartans’ in his own party? There are supposedly 21 right-wing MPs so fiercely opposed to any deal that he risks losing MPs from both wings of the Conservative party.
The most likely outcome in our view is that the Prime Minister will bring a deal back to parliament. This will be the result of serious horse-trading and late night negotiations at the European Council meeting on 17-18th October. Bringing it back to parliament will result in more of the same – by which time the current provisions are that the PM (or possibly someone else mandated by parliament) must ask the EU for an extension.
Are we likely to have a General Election?
Boris Johnson, having stood on the steps of Downing Street and declared that ‘the last thing anyone wants is a General Election,’ would like a General Election. Jeremy Corbyn, having demanded one all year, desperately does not want one.
The reason is the same in both cases: all the polls currently suggest that the Conservatives would win and that Labour would lose a lot of seats – especially if the Conservatives entered into an electoral pact with The Brexit Party (TBP).
Last week, parliament voted against holding a General Election – and under the Fixed Term Parliament Act the next one is not due until 2022. However, the odds quoted by the bookmakers and betting exchanges currently suggest that we are likely to have an Election this year, in either November or December. That would indicate a deal with the EU, a small extension to Brexit and a hopeful Boris Johnson going to the polls a few weeks before Christmas, with any potential deal with TBP very much depending on the terms on which the UK left the EU.
Is Parliament likely to be recalled?
This is perhaps an easier question to answer: almost certainly not. The Labour Party Conference begins on September 21st, the Conservative Conference eight days later and the Queen’s Speech – opening the next parliamentary session – is scheduled for Monday 14th October. Having prorogued parliament, the Prime Minister will see little need to recall it and face another barrage of ‘unhelpful’ votes. So over the next three to four weeks, he will continue to shuttle backwards and forwards to Europe, hope that he can hold his own party together – and wait to see if the Machiavellian Dominic Cummings pulls a procedural rabbit out of the hat should negotiations with Europe break down.
How is the UK economy performing while all this is going on?
It is generally felt that the possibility of a no deal Brexit is ‘priced into’ the UK stock market. As we are writing, the FTSE 100 index of leading shares is standing at 7,348 having started the year at 6,728 and ended August at 7,207.
Very clearly, there are plenty of things that influence the stock market other than the Brexit negotiations: the US/China trade dispute is an obvious example. But the FTSE is clearly not in freefall: a rise of 9% since the beginning of the year represents a more than acceptable performance.
The pound is currently trading at $1.25 – which is down slightly on the $1.27 at which it started the year. Against the euro it is trading at €1.13, having risen over the last month as the European Central Bank has re-started quantitative easing to try and boost the eurozone economy.
The UK economy’s glass is half full or half-empty, depending on how you choose to look at it. Unemployment is down to its lowest level for 45 years, there are 300,000 more people in work than a year ago and wage growth is strong. Against that, the high street continues to be in trouble, confidence is low in the service sector and factory output has fallen at its fastest rate since 2012.
So there is good news and bad news – but the UK is doing a good deal better than many of its major competitors.
What will all the events – and the likely outcomes – mean for my savings & investments?
Traditionally, the one thing stock markets value above all else is certainty. The one thing Brexit definitely does not deliver is certainty. But, as we have seen above, the UK stock market is having a good year: around the world other major markets are also up. Germany and the US were up by 13% to the end of August, the Chinese market by 16%.
So the reality is at odds with the often gloomy news headlines. As George Osborne was fond of remarking when he presented his Budgets, external factors have as much influence on the UK economy as events at home.
Saving and investment – as we repeatedly stress – is a long-term commitment, and Brexit does now appear to be nearing the end-game. There is plenty to be optimistic about in the UK and, in or out of the European Union, that will not change.
Neither will our commitment to our clients: rest assured that whatever happens, we will be here to answer your questions and keep you updated on current events that may affect you, your savings and your investments.
As Harold Macmillan famously remarked, “Events, dear boy, events.” There will always be ‘events’ for us all to deal with – even when Brexit is a distant memory.