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Brexit bell tolls

2 min read

Ahmer Tirmizi, Head of Fixed Income Strategy31 Jan 2020

Here we are, on the 31 January. As the clock strikes midnight (Central European Time), Big Ben may not bong in celebration of the UK leaving the EU but the clock will start ticking for negotiators who will be under pressure to flesh a trade agreement.

Over the next year the UK will be in a ‘transition period’ – still in the EU, in name only – until 31 December 2020. In the meantime, there are three important stages to look out for:

Spring 2020: negotiations start – over the next couple of months the Prime Minister will form his negotiating team. Both sides will publicly set their stalls out for what they will look to achieve. Expect to hear more about fishing rights, concessions for the City and immigration thresholds. It’s likely that the government will continue with their line of no extensions and getting a deal by the end of the year.

July 2020: last chance to request extension: it will quickly become obvious that a comprehensive deal is unlikely by the end of the year. However, according to the withdrawal agreement, the government will have to request an extension to the transition period by the summer of this year. If not, the No Deal cliff edge becomes a reality again, at least in theory. The government is likely to stick to its manifesto promise of not requesting an extension. It has even gone so far as to put this commitment into law. This means they will continue insisting a comprehensive trade deal will be completed by the end of the year.

Q4 2020: 11th hour deal/extension/crash out: The market’s attention will likely be refocused on Brexit by this point. As the end of the transition period comes into view, we will likely face a re-run of the ‘will we, won’t we crash out’ saga of the last two years. As with the last few times, some form of 11th hour agreement is likely, but not without some uncertainty along the way.

When it comes to the 7IM portfolios, it’s best to not overthink UK politics. The goal of our global multi-asset portfolios is to be diversified. They are not especially vulnerable to UK uncertainty. This is intentional.

So while we worry about the future of UK politics, we don’t have to worry about the future of our portfolios.