It has been two years, six months and 12 days since that day on June 4, 2016, when the world awoke to the news that the people of the United Kingdom voted for a break away with the rest of the European Union. Divorces are complicated and messy at best, and if this is to be compared to one it can be considered as the mother of them all.
After delaying the initial parliament vote in December in favour of trying to extract further concessions from the European Union, the day of reckoning on January 14, delivered the inevitable blow to Theresa May’s Brexit deal. During last year’s snap election, the Labour party came back from its relative obscurity that grappled the party post the Tony Blair and Gordon Brown heydays. The prospect of the Labour party possibly endorsing a second referendum has galvanised support and mobilised many disenfranchised youths.
However the party’s leader Jeremy Corbyn, has come short of endorsing a second referendum, making the Labour party’s position unclear in this respect. It is of paramount importance that the British people are given a clear way forward in this regard. Both Conservative and Tory parties have a proportion of representatives in favour of Britain remaining, despite these have decreased in their numbers after the 2016 referendum.
On Wednesday, 71 Labour MPs have publicly come out endorsing a second referendum citing that the British people should be given another vote following the revelations of these past two years people may have changed their minds on wanting to exit the EU in the first place. However party leader Corbyn considered by some as a Eurosceptic himself, despite having voted to stay in the EU on the basis of the party line, may actually fancy a hard Brexit.
It is becoming clearer that the future of the British exit from the EU hangs on the will of their British parliament. Despite rejecting the Brexit deal by a wide margin on Tuesday, parliament has subsequently rejected by a narrow margin the vote of confidence tabled by the leader of the Opposition Corbyn.
This distils the current situation as one whereby parliament rejects the proposed Brexit deal, but intends to stick with its Conservative coalition and also its resilient leader May. This merely reflects the will of the slim Conservative majority to hold on to power, and in their while at the same time not willing to endorse the proposed Brexit deal.
It is true that no one knows what is going to happen in the coming weeks, months and years. Markets coupled with uncertainty are a recipe for volatility
During an address from 10, Downing Street, May, fresh out of a no-confidence vote claimed that she wants to reach out to all parties in parliament to work on a Brexit deal they can follow through a vote. Reaching across the aisle may be the prime minister’s ultimate effort in trying to secure this deal. It remains unclear what changes can be made in the few weeks remaining till the day of March 29 that would appease the 230 MPs that rejected the deal.
Given the chain of events, we shall expect in the coming weeks a series of cross party negotiations including coalition partners and members of the opposition. These negotiations will not include the main Opposition party, the Labour party, which has disagreed to enter into talks unless a no-deal Brexit is put off the table. However, such position hinders the ruling Conservative majority from working towards a deal in the first place, increasing the likelihood of a no-deal Brexit. Also it is unclear what further concessions can be made from the European Union, which has made it clear that no further improvements can be made to “sweeten the deal” for British MPs to vote it through parliament. This creates a situation of a further deadlock for the United Kingdom which will only result in further escalation in the coming months.
This leads us to think in terms of timelines. The cross party negotiation will take time until a strong enough consensus can be formed about the type of changes to the existing deal the UK parliamentary majority would want to ratify the deal.
This would then see the British Prime Minister flying to Europe to try and clinch these modifications and have them approved by the European Council. Being a large bureaucratic organisation this will also take time and given that the EU is highly unlikely to accept terms that may jeopardise its members such as Ireland, Gibraltar and Cyprus, the Prime Minister may find herself in a vicious cycle. From the timelines it looks possible that the UK would have to demand an extension from the agreed date of March 29 to avoid a potentially devastating hard Brexit.
This could also mean that the UK would have to hold European MEP elections, as all members of the EU are due to vote their parliamentary representatives during the month of May.
At the same time the message towards a second referendum may gain further traction, against the resolve of the Prime Minister to deliver her Brexit.
The Prime Minister for all her talk that the British people clearly demanded Brexit in their referendum may be constrained to go to yet another referendum if she cannot muster a majority to vote towards some sort of deal.
It is true that no one knows what is going to happen in the coming weeks, months and years. Markets coupled with uncertainty are a recipe for volatility.
Regardless of the outcome, trade flows and business activity will at some point adjust to a new normal. Despite that a new normal could look different from the previous relationship, trade will ensue, people will still come and go. What we are unsure of is the framework under which this will be conducted. Whether it is a full-blown hard Brexit on one side or a possible second referendum which could make the last two years look like just a bad dream, there is a strong argument that investing in the UK is an attractive value proposition. Long-term investors, who have weathered this market turbulence, should hold on to their investments since markets have already priced in a worst case Brexit scenario. For such investors it may be the right time to evaluate whether the British market could present an opportunity to average down their investment cost. This should be always done by selectively evaluating the options on the market with a professional financial advisor.
This article was prepared by Daniel Gauci HnD Management, CeFa Investments, an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The company is licensed to conduct investment services by the MFSA and is a member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on 2122 4410 or daniel.gauci@jesmondmizzi.com.
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