Brexit endgame: Part IV

After 48 hours of to-ing and fro-ing we’re back where we started. On Thursday the Commons voted, as expected, 413 to 202 in favour of seeking an extension to Article 50.

Go to the profile of Anthony Lynch
Mar 15, 2019

To read part I, please click here 

To read part II, please click here 

To read part III, please click here 

Here we go again

After 48 hours of to-ing and fro-ing we’re back where we started. On Thursday the Commons voted, as expected, 413 to 202 in favour of seeking an extension to Article 50. Politically this makes the idea of leaving under a “No Deal” scenario at the end of March highly unpalatable.

However, the pound has remained broadly unchanged and at the time of writing markets are broadly flat. The reason is simple – we’re back where we started. As the March 29th deadline draws ever closer MPs will be asked to once again vote on the same deal that they’ve already rejected twice. Another meaningful vote is expected by March 20th, ahead of the EU Council meeting.

Vote for the deal, or a long delay?

The UK voted to leave the EU 33 months ago. With two weeks to go until the exit date that Theresa May remains committed to, time is running out. The deal that took two years to cobble together has been rejected twice and remains broadly unchanged.

If MPs finally give in and vote to support the deal, then Mrs May can breathe a sigh of relief. It is possible that the threat of a lengthy extension will be enough to bring some of the ERG round to supporting the deal. It is clear at this stage that the EU will not be renegotiating.

The Health Secretary Matt Hancock told the BBC that “there are now two options left, one is to vote for the deal, get it through and leave in an orderly way and the second is a long delay”. An extension to June 30th is now expected in the event that parliament supports her deal next week and it has been noted that a longer extension would be necessary if it is rejected.

If they do not support her deal, then all eyes will turn to the terms of an extension, if indeed the EU27 unanimously wish to support one.

Many EU members do not want to extend Article 50, particularly with EU parliamentary elections coming up in May, unless there is clarity on what Britain intends to do next. Indeed the splits within the EU can be seen just from observing the statements of Jean-Claude Junker, the European Commission President, who insists that any postponement “should be complete before the European elections”, whereas Mr Tusk, the bloc’s summit chairman, has made it clear that he would be supportive of a longer delay which has been interpreted to mean at least another year.

On the ground

As March 29th draws ever nearer, we’ve observed more pre-emptive inventory building from the companies we follow – from Greencore, who make sandwiches, storing frozen prawns to Dignity, the funeral provider, stockpiling imported chipboard for coffins. Uncertainty is definitely starting to bite, but for now it seems containable.

Anthony Lynch is portfolio manager of the JPM UK Equity Plus Fund, JPM UK Equity Core Fund & The Mercantile Investment Trust

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Go to the profile of Anthony Lynch

Anthony Lynch

Portfolio Manager, J.P. Morgan Asset Management

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