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Brexit: The harsh reality of slow progress

After two years of fraught negotiations, Theresa May suffered a heavy defeat as her Brexit Bill was rejected by 432 votes to 202. This historic defeat, one of the largest in 100 years, prompted Labour to immediately table a motion of no confidence in the Government.

Uncertainty continues to reign. This is the harsh reality of progress during these unprecedented Brexit negotiations. Let’s not forget that on the other side the EU needs the agreement of 27 nations, a fact that is easily overlooked when looking at this from inside the UK.

Time isn’t something the Government has much of in the countdown to 29 March. The possibility of an accidental No Deal should not be forgotten. But today the focus will be on the motion of no confidence taking place this evening.

If defeated, the Prime Minister will have to resign. It’s unclear how a General Election could play out, and where that would leave the UK. No matter who sits in No.10, time is short and there’s no sign of a clear consensus in Parliament.

If Theresa May survives the vote, something news reports are suggesting today, her second in just over a month, she will seek to identify what’s needed to secure support for the Bill from specific members of parliament in a second vote, which No. 10 has said will happen by 21 January, less than a week away.

This is where MPs will put forward their arguments – a No-Deal Brexit, a softer Brexit, a further referendum, or call for the revoking / extending of Article 50. Politicians in Europe today seem reassured that there is no majority in Parliament for a No-Deal Brexit, but as it stands today, without an alternative, that remains the default outcome of this process.

We believe the EU is now in the position to only make cosmetic changes to the agreement, which outlines the Northern Ireland border backstop, citizens rights, the financial settlement and details of the transition period.

We do still believe that the most likely outcome is that a deal is done before the UK leaves the bloc – whether that’s on 29 March or after an eleventh hour plea to delay the day Britain leaves the EU remains to be seen. But it’s tough to have too much conviction about that.

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Those hoping to see out the countdown to 29 March 2019 with more certainty will be disappointed, although the Bill’s defeat did not come as a surprise. How the next few days play out is very unclear, and we’re not going to pretend we have a crystal ball.

We’ve been slowly adjusting our portfolios since the referendum vote in 2016 to ensure the long-term implications of these Brexit negotiations are reflected in portfolios, and suitable for all investor risk levels.

Our portfolios currently express our view that a No Deal Brexit is unlikely, but not impossible. Sterling continues to be the main mechanism for markets to express their views on Brexit, and we would expect that to continue. We’ve gradually raised our sterling exposure in higher risk portfolios over the past few months so they are less susceptible to short-term currency fluctuations, those portfolios remain well-diversified across the globe.

A globally diversified asset allocation remains a prudent approach. This is a long-term feature of the Moneyfarm investment philosophy that has remained largely unchanged throughout the Brexit debate, and will likely continue to for years to come.

Of course, UK equity valuations could look decent if there were more certainty, and with more certainty on the direction of travel this could present opportunities.

Our portfolio managers continue to closely monitor the markets on your behalf. Looking at Brexit along with other trends across the globe. Our promise is to always manage the risk exposure of your portfolio as the shape of financial markets change, ensuring our investment advice continues to be suited to your needs.  

If you have any questions about how your portfolio is prepared for Brexit, please book a call with your Investment Consultant, who will be happy to talk it through.  

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