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This article is taken from our FREE daily investment email Money Morning.
The story so far…
Theresa May has put a Brexit deal on the table and she’s sticking it out as leader of the Conservative party (currently the dictionary definition of a “thankless task”).
Now she just has to get Parliament to approve it. How are the odds on that looking?
Well, some Tory MPs – led by Jacob Rees-Mogg – want her gone. Most Labour MPs want her and her party gone. And I wager you could ask every parliamentarian in the House of Commons if they liked the deal and you wouldn’t get a single “yes”.
So what’s going to happen next?
What happens next?
None of us can predict the future, and Brexit has reached that very unpredictable point where an awful lot hinges on individual personalities.
However, it is helpful to know what the most likely scenarios are. You can’t do anything to influence the outcome at this point. But it can help you to stay calm amid the chaos if you have a rough idea of which path we’re heading down.
So first, there’s the leadership challenge. If they want to get rid of Theresa May, then 48 Conservative MPs need to send a letter of no confidence to the party’s 1922 committee. A lot of rumours are flying about as I write, but it sounds as if they might manage it.
If they do get 48 letters, May then needs to lose the vote of confidence before there is a leadership challenge.
Amid all the noise about this, I think there’s one key thing to remember: if a leadership challenge was viewed as a winning option, then it would already have happened by now.
In the absence of full-throated support for another leader, I imagine that everyone was waiting to see if May could actually go the distance and stick it out. And whatever else you may think of her, she’s proved that she’s tenacious.
So the fact that the “rebels” are only acting now means that they realise they’ve run out of road and it’s now or never. It doesn’t mean they won’t pull it off, but they’re not acting from a position of strength. And the big question is, who would take charge?
We’ll revisit that if it becomes an issue. But it’s certainly not good for the pound in the short term.
What about that other hurdle, the one of getting the deal past the House of Commons? Parliament votes in December on the deal, probably in the first week of December. If they knock it back, the government has 21 days to come up with a new plan.
Just to be clear on this, Parliament will almost definitely knock it back. As Pantheon Economics puts it bluntly: “The PM needs 50 Labour MPs to back her withdrawal agreement; no chance at the first attempt.”
So what happens then?
There’s still a long, long way to go on Brexit I’m afraid
Here’s something to remember about this “endgame” business. Throughout all this, while the papers and bloggers are screaming for your attention, remember all the hysterical headlines you read about Greece and how wrong the majority of them ended up being.
If the deal gets knocked back, Pantheon reckons that May will stay. They reckon there will be another fudge from the EU. She goes back, renegotiates, and obtains “a superficially refreshed withdrawal agreement that enables some MPs to abandon their original position, or to switch to abstaining”.
Interestingly, Pantheon also reckons that this increases the odds of a second referendum – if MPs really can’t agree the deal, then put it to the voters again. That smacks of wishful thinking to me, particularly as it adds complexity to what is ostensibly already a tight schedule.
That said, maybe I’m wrong. I suspect that if the EU reckons Britain will end up caving in or holding a second referendum that could result in a reversal of the original decision, then an extension to Article 50 would be on the cards.
On the other hand, Vicky Redwood at Capital Economics is less sanguine about the prospect of fudge or extension. Indeed, the research group thinks that a “soft Brexit” is now less likely, and that it’ll come down to “no Brexit” or “no-deal Brexit”.
That said, Capital Economics also suggests that no-deal need not be as bad as it being painted. Yes, there’d be a big short-term hit to GDP. But there’s both the Bank of England and the exchequer to bear in mind.
If Mark Carney decided to slash interest rates and print money in response to the mere fact that Britain had voted for Brexit, think what he’d do in a “no deal” scenario. And Philip Hammond keeps talking about the warchest he’s saved up to pay a successful Brexit deal dividend – if it’s no deal, he’ll need to pull it out for that.
In short, there’s a long way to go before this is a done deal. It’s going to be a very wobbly time for sterling and for British assets. But I think it will throw up a fair few buying opportunities too.
If you don’t have a watchlist of British companies you’d like to invest in, now really is the time to build one. We may well see a repeat of some of the opportunities we saw in the summer of 2016.
So that’s the best preparation I can suggest an investor can make for Brexit – have some ready cash and a shopping list.