EDITOR'S LETTERMerryn Somerset Webb
“Vote leave. Get Remain.” That was the headline on a blog I wrote at moneyweek.com just before the UK referendum in June 2016. One thing you might expect if you vote for Brexit, I said, was an awful lot of negotiation followed by “a joyous announcement that the EU has finally seriously reformed” followed by another referendum “in two to three years”. After the vote I was even less certain that I would ever see what I voted for.
The next blog on the matter, only a few days after the vote, noted that voting for Brexit was only the start. We also needed to elect a government capable of delivering it. And given that “finding a way to make sure that Brexit means anything but Brexit is all the rage”, that bit was looking iffy.
So here we are, two years on, and, in the wake of poor Theresa May’s mammoth defeat on her deal nothing much has changed. All the options that were on the table back then are spoken about as if they are still on the table now: a bespoke deal, a second referendum, another general election, suspending Article 50 – the 2016 equivalent of this was delaying its invocation – and a return to discussing an associate membership of some kind.
It’s all a bit Groundhog Day. It’s also allowing every MP and commentator in the UK to suddenly become their own little king of wishful thinking. Ardent leavers, egged on by the president of the European Council, Donald Tusk (“the risk of a disorderly Brexit has increased”), reckon we are getting closer to a “clean Brexit” (that’ll be “crashing out” to remainers); middle-way leavers are sure that the EU is on its way back to the table (the German foreign minister suggested that “further talks” are possible); passionate remainers reckon we are getting closer to a second referendum and hence to no Brexit; and moderate remainers are sure that we are nearly at the point where leaving the EU will end up being much like staying in the EU. “The tide is ebbing on a hard Brexit,” one cabinet minister told the papers on Wednesday. “The longer this goes on the softer Brexit will be.”
The markets look rather like they agree with the minister: the pound, the UK ten-year gilt yield or our equity markets moved much on Wednesday.
We are as guilty of wishful thinking here at MoneyWeek as everyone else is (I suspect my original forecast of leave looking much like remain might turn out to be more valid than I would like, but not all of my colleagues agree with me).
However, here are a few things we do all agree on. First, whatever the outcome, the risks of even short-term disruption to our economy and those of the EU have fallen. As Matthew Lynn pointed out a few weeks ago, the more you prepare for something the less bad it is. Everyone is now preparing for a no-deal/clean Brexit/crash out. So the risks connected to it are being reduced every day.
And second, given this slow fall in the overall level of Brexit risk, UK equities are still too cheap. See our cover story, for some thoughts on what you might do about that. As Neil Collins points out in the Financial Times, when the current sense of crisis passes (and they usually do), “the turn could be as dramatic as the fall”.