The Brexit show is rumbling on and on. We’d all be thoroughly bored by now if it wasn’t so vital to our future.
The Prime Minister has put together a Withdrawal Agreement of nearly 600 pages, which the House of Commons will vote on during December. Right now, the maths don’t stack up. It’s hard to see where a majority could come from – Labour isn’t interested, the Democratic Unionist Party (DUP) won’t accept it, and plenty of Conservative MPs are shouting against the deal. But we predict that there’s a fair chance that a version of it will pass through Parliament before 29 March 2019.
Coming up with a deal that would please most people was impossible. But Theresa May has managed to get some control over the Brexit debate. Though the Withdrawal Agreement has been widely criticised, at least everybody is now talking about the same thing. After almost two and a half years, there is a clear deal to discuss and argue about. From now on, the battle will be fought on common ground.
For many MPs, this deal will come to be seen as good enough. Few politicians who’ve survived the last two years want to start all over again, whether Labour or Conservative. It’s easier to use the current deal as a platform to criticise May than it would be to re-negotiate with the EU. This is certainly true for Labour, and arguably for some of the Eurosceptic Conservatives. As Boris Johnson has shown, playing the game is far more difficult than being a spectator.
"Sterling remains inexpensive by historical standards and we would not be surprised if it claws back some lost ground next year."
As for the challenges within the Conservative party, May’s opponents are walking a fine line. If a leadership challenge were to result in a general election, there’s a risk that Labour might win. That is such an unappealing prospect that most Conservative MPs are likely to support May – which might result in enough votes to pass the Withdrawal Agreement. Jacob Rees-Mogg may not like being a backbencher under May, but he certainly doesn’t want to be in opposition under a Labour government.
Of course, it’s important (and dispiriting) to note that even if this deal was passed, it would not draw a line under Brexit – it would just set the stage for talks about the future relationship with Europe. With tweaks and horse trading, the Withdrawal Agreement might just get over the line. Then, the real discussions would begin.
Our view is that some kind of Brexit arrangement will be reached that is not too silly: the economic costs otherwise could be high enough to terminate political careers.
What does this mean for UK assets? Sterling remains inexpensive by historical standards and we would not be surprised if it claws back some lost ground next year. And, the FTSE Midcap is beginning to look intriguing… these companies are cheap and unloved by global standards, trading at a modest price/earnings ratio of around 12, and could provide a welcome surprise if the politicians get their act together.
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