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03 April 2019

The saga continues ...

29th March 2019 has come and gone yet still we have no Brexit. Instead, on this date, Theresa May saw her Brexit deal voted down for a third time. The legal deadline currently stands at 12th April and another European Council will be held on 10th April, where the EU will ask Mrs May to indicate a way forward.
 
So what does the way forward look like? Monday 1st April saw the second round of indicative votes, with still no consensus reached on the kind of Brexit MPs would prefer. After seven hours of Cabinet talks the following day, Mrs May reached out to Leader of the Opposition Jeremy Corbyn in an attempt to find common ground to break the deadlock. Mr Corbyn has previously said he wants a customs union and the prioritisation of workers’ rights.

An EU official quoted in the FT over the weekend said he believed there are really only two options for the UK if we want Brexit, aside from no-deal Brexit: “Either the UK asks for an extension beyond 22nd May, in which case it must participate in the European Parliament elections, or it must adopt the withdrawal agreement.”

They even went on to suggest that the indicative votes were detached from the reality of the situation: “The discussion in London seems as always a bit detached from how the reality looks in EU27 capitals, the withdrawal agreement is closed. Time is running out” as the UK needs to come up with some plan before 12th April if we are to avert a no-deal Brexit.

The Pound fell against other currencies on the result of the vote on Friday 29th March, but rose back above US$1.30 against the dollar after Mrs May announced she would seek a further extension to Article 50. However, we are still a long way off where we were before the referendum result and so at this stage, with no end in sight and the most likely outcomes looking like either a long delay or no-deal, an expensive summer holiday for all those venturing outside the UK looks to be in store.

There is some good news to be found in the bad, as mortgage rates look unlikely to rise given the latest business investment numbers. Sadly, business investment in the UK fell in the final three months of 2018 for the fourth straight quarter, which is the longest sustained fall since the recession in 2008.

Therefore, the Bank of England (BoE) is unlikely to raise rates in this environment with Governor Mark Carney showing concern: "The fog of Brexit is causing short term volatility in the economic data, and more fundamentally, it is creating a series of tensions in the economy, tensions for business."

With the BoE even seeing a one-in-four chance of the economy slipping into recession in the second half of this year, a rate cut seems more likely despite very low unemployment numbers.

In summary, the market hates uncertainty as does business in general. Therefore, without a conclusion on the horizon, we continue to be mindful of UK domestic and Pound exposure in general within our portfolios and look to diversify away as much as we can in this environment.

James Andrews, Director – Head of Investment Management
 
You can follow us on Twitter www.twitter.com/redmaynebentley
www.redmayne.co.uk
 
 
 
The saga continues ...
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