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I know you’re absolutely dying to talk some more about Brexit, but allow me to give you a quick reminder first – we’re holding an event in central London on the evening of 12 February, and I would very much like you to be there.
I’ll be sitting down with MoneyWeek regular Tim Price and Iain Barnes of digital wealth manager Netwealth to talk about the biggest threats and opportunities in the market right now. Just click here to find out more and book your tickets. Do hurry though, spaces are limited.
There’ll be plenty of time to talk to the panelists afterwards – it’s always nice to meet MoneyWeek readers so if you can make it, click here to find out more and book your tickets
And I can’t help but feel that today’s Money Morning topic might just come up at some point in the evening…
We are, of course, talking about the “meaningful vote” in Parliament last night, on Theresa May’s EU withdrawal deal.
The vote certainly was meaningful. I’m just not sure that the meaning was exactly what May would have wanted to hear.
Is that vote meaningful enough for you?
To get her withdrawal deal past Parliament, the prime minister needed to get 319 votes. She managed 202.
To say it was a resounding defeat is an understatement. With 432 MPs voting against the deal (including 118 out of 317 Conservative MPs), it’s apparently the biggest defeat inflicted on a government in British parliamentary history (I say “apparently” because no doubt someone will manage to dig out an example from the 1700s that contradicts the hyperbole here).
Anyway – record-breaking defeat or not – the message from MPs was pretty clear: “we may not agree on the deal we want, but we all know we don’t want this one”.
Of course, the first part of that sentence is wherein lies the rub.
Some MPs – a minority – rejected May’s deal because they don’t want to be stuck in the backstop. They would prefer a “clean” Brexit, or “no deal”, or “hard Brexit” (choose your term according to your taste). This is where the DUP and the Brexiteer wing of the Tory party sit.
Some MPs rejected May’s deal because they really want to stay in the European Union and they now sniff blood in the water. They hope for a second referendum and they think that the risk of “no deal” is worth taking. We’ll come back to that in a minute.
And some MPs voted purely on tribal lines. A lot of Labour MPs want to remain but are deluding themselves that their leader – who is probably the hardest Brexiteer in the house after Jacob Rees-Mogg – will somehow indulge them. They are simply sticking their fingers in their ears and focusing on getting rid of the hated Tories.
So what happens now? It’s anyone’s guess. But I can outline some scenarios.
The only thing that everyone can agree on is to put off making a decision
Unless Theresa May resigns, she will be able to stay on as prime minister. She is highly unlikely to lose Jeremy Corbyn’s vote of no confidence (which is happening today), and the Tory rebels have already had their shot. So let’s assume she stays in power. She has until Monday to reveal what she plans to do.
Very few people actively want a “no deal” outcome, and not just on the British side. The EU doesn’t want it either. It’s expensive (Britain is one of the few member states to pay in more than it gets out) and it’s a headache and it comes a couple of months before the European Parliament is about to be flooded by a whole group of MEPs who are a lot less enamoured of the EU than the current lot.
But that takes us back to the initial problem. A majority is against “no deal” (whatever that is). But a deal that is acceptable to everyone involved is clearly a long way from being on the table.
To my mind, the most obvious scenario from here is a delay in the Article 50 process. Most MPs – from those who hope we’ll never leave, to those who want to leave but would be happy to have a bit of extra time to put in the preparations – would back it or at least accept it. And kicking the can of worms a bit further down the road is a time-honoured EU tradition.
I reckon that this is what the market expects too. Sterling is the most Brexit-sensitive asset class around. It rebounded strongly last night despite May’s trouncing. You can interpret that in a number of ways but I think it says two things: one, the market reckons that there’s now a higher chance of no Brexit at all. Two, even if we get “no deal” then there will be more time to prepare for it.
Is a second referendum really on the cards?
There’s another point to make here. It’s clear that the people in charge of this process – MPs in the UK, and on the EU side – would rather there was no Brexit at all. And the longer that this drags on for, the more inclined they’ll be to throw the referendum result under a bus.
I can’t currently see a pathway to a second referendum, certainly not while May is in charge. And it strikes me that it would take a long time. You’d have to agree the questions, which might be tricky, given that no one knows what deal they’d be happy with.
And then you’d have to pass legislation which ensures that this is a binding rather than an advisory referendum – I mean, who’s going to take MPs’ word for it that they’ll abide by this result? They said that last time, and clearly at least some of them were lying.
But stranger things have happened, and it’s clear that the hopes of those who want a second referendum are up.
So that’s where we are. My base case scenario for now (although it’s not a high conviction view), is that we get a delayed process and a softer withdrawal from the EU.
What does any of this mean for your money, rather than your blood pressure?
Well, from an investors’ point of view, we are getting to the stage where whatever Brexit we get, it won’t be a total shock. And I think the price of sterling is reflecting that.
And on that basis, I think the UK is worth investing in. Institutional laziness means that global fund managers have been cheerfully able to neglect the UK without being nagged by their clients.
That gives you – a private investor – an opportunity to buy in. Once Brexit is decided – in any shape or form – the big institutions will have to start paying attention again, and at least some money will flow back into the market. In this week’s issue of MoneyWeek, my colleague Matthew Partridge takes a look at some very attractive UK retail stocks going cheap right now, for example.
We will of course be covering all of this in more detail in the magazine as the saga continues to twist and turn. And as I mentioned earlier, I’m almost certain the topic will come up at our upcoming event – click here to find out more and book your tickets!