The UK and EU Formally Part

The UK officially left the European Union at 11 pm UK time on Friday 31 January 2020 but in many ways this became a fact when Boris Johnson’s victory was secured in the December 2019 election. All the Conservative MPs had signed agreements that they would back the government’s withdrawal bill so it was fairly inconceivable that enough would revolt to block the bill becoming law.

The near term impact is really political rather than economic with little discernible difference for business and individuals as the 31 January exit date passed. The political difference is that the UK will no longer be a member of the EU so will not have a vote within those bodies. During the current transition period, due to last until the end of December 2020, the UK will still be part of the single market and customs union whilst also being subject to European law.

We expect there will be a lull in Brexit noise as negotiations continue behind the scenes but for activity to increase as the end of the year approaches. Inevitably we will also see sterling and UK equity volatility ebb and flow as leaks and statements suggest varying degrees of likelihood of an eventual deal. In the short term this should give some breathing room for UK risk assets which have been under a Brexit cloud since the 2016 referendum.

There are signs that global asset allocators who have previously shunned UK equities due to the political risk are reconsidering their positions as are we. We have been adding to UK equities since November 2019 as signs emerged that we would get some political clarity post the General Election. That said, we still retain our underweight to the region for the time being as we do expect the aforementioned flashpoints to cause volatility as markets seek to use sterling and domestic UK shares as the release valve for Brexit uncertainty.

Brexit certainly isn’t behind us but there may be some short term break from the noise.