Wednesday 31st July 2019

New Prime minister. New Brexit uncertainty.

Article By Brooks MacDonald

Brooks MacDonald View

The market’s UK outlook remains fixated on Brexit above all else. UK corporate earnings, economic fundamentals and business sentiment all play second fiddle to the outcome of the UK’s secession from the EU. Boris Johnson’s government will not have an unfettered ability to determine the fate of the UK/EU relationship. The parliamentary arithmetic means that breaking away from the current impasse looks unlikely given how entrenched Brexit views even within the Conservative party have become. At the same time the upcoming changes to leadership within the major EU institutions on 1st November does not set a positive backdrop for large changes to the current withdrawal agreement.

Our base case remains that a soft Brexit is more likely than a hard or no deal Brexit but as we approach the 31st October the risks of no deal have risen significantly. Whilst it remains to be seen whether Johnson’s rhetoric tempers once he has settled into office, his first speeches as PM augur an administration more accepting of the risks of a no deal.

Regardless of the result of Brexit we believe the Johnson government will want to tilt towards expansionary fiscal policy but until markets know the path of Brexit, we expect sterling and UK assets to be range bound with risks to the downside. As a result, we retain our underweight to UK equities; UK risk assets trade at a discount to global peers, however we feel the binary nature of the current political impasse could lead to significant volatility in the near term.

95 days to go… and counting…Just 22 Parliamentary days!

Key dates in the Brexit process

Important information

The views expressed are those of Brooks Macdonald as of 26 July 2019. The information in this article does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. This information is for the recipient only and should not be reproduced, copied or made available to others. Brooks Macdonald is a trading name of Brooks Macdonald Group plc used by various companies in the Brooks Macdonald group of companies. Brooks Macdonald Group plc is registered in England No 4402058. Registered office: 72 Welbeck Street London W1G 0AY. Brooks Macdonald Asset Management Limited is authorised and regulated by the Financial Conduct Authority. Registered in England No 3417519. Registered office: 72 Welbeck Street London W1G 0AY. More information about the Brooks Macdonald Group can be found at www.brooksmacdonald.com.