The battle to break the Brexit deadlock is intensifying on both sides with the culmination that a General Election by year end is inevitable (2019 General Election odds are 1/4, source Paddy Power). Despite the somewhat desperate actions by Boris including the ousting of some well thought of Conservative MP’s his “do or die” attitude has struck a chord with at least some of the electorate and the Conservatives now attaining a 34% popularity in the opinion polls (mostly at the expense of the Brexit party) from a low earlier in the year of around 20% and well ahead of Jeremy Corbyn’s Labour (see below).
Boris’s continued requests for an early general election on the back of Tory improvement in the opinion polls has been opposed by Jeremy Corbyn’s Labour party, who persist with a re-vote policy. A re-vote on the referendum would merely delay the process rather than solving the near-term uncertainties, and given the EU budget is due to be drafted and finalised in the summer of 2020 a potential re-vote would clash with this schedule meaning the EU would be inclined to reject such a delay.
Even if the House passes legislation that compels the Prime Minister (PM) to ask the EU for an extension to the end of January 2020, it does not necessarily mean the risk of a no deal Brexit has been reduced. Should Boris Johnson win a general election majority he could repeal the extension legislation and negotiate with the EU on the basis that the UK would be prepared to leave the bloc without a deal if the backstop on the Irish border is not dropped from the Withdrawal Agreement.
Additionally, two other interesting permutations have arisen in the confusion.
No confidence – the PM can call a vote of no confidence in himself instead and challenge Jeremy Corbyn to form a government and it’s unlikely Labour can succeed in the scripted 14 days. After that period an election is automatically called and the sitting PM will choose the date, he could choose one before Brexit as he’s planned to try and get a deal, or he could take Britain out without a deal on 31st October by calling an election afterwards.
Veto – in the event Boris couldn’t stop the law and is forced to ask Brussels for an extension there’s no guarantee they would accept it. EU bosses have insisted they will only give an extension if the UK have a second referendum, which is unlikely as mentioned above, or an election to break Brexit deadlock.
In conclusion despite the undervalued potential in the UK markets we continue to prefer international over domestic UK equities.
Author: Christopher Golding is Head of Investments and a director of Smith & Williamson International Ltd.
Please remember the value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance. We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2019. Code J28. Smith & Williamson Investment Management LLP authorised and regulated by the Financial Conduct Authority. Smith & Williamson International Limited Regulated by the Jersey Financial Services Commission. Smith & Williamson Investment Management (Europe) Limited Regulated by the Central Bank of Ireland.