/ Author: SPF

What happened?

So ‘Plan B’ wasn’t a game-changer. It looked pretty much like the Plan A that parliament rejected just a week ago. The government’s plan involves a bunch of token gestures looking to sway enough MPs back to the original Withdrawal Act. These involve: assurances from the EU that the Irish backstop won’t be permanent, a promise to consult parliament in the next stage of negotiations, and some guarantees on environmental and workers’ rights. Nothing to see here then.

What happens next?

A Labour backbencher said of Theresa May: “She knows that she should rule out No Deal … I think she is hoping that parliament will do this for her.” That’s probably right. The splits within the governing party (and parliament) leave the Prime Minister trying to find an unsatisfactory middle ground that gets her back to her original deal, with some tweaks. There will be a vote on Tuesday 29th January but it will not be a “meaningful vote”. However, next Tuesday will still be worth keeping an eye on for the amendments to the government’s ‘Plan B’ motion. While this vote won’t be binding it will test support for the options and give us a steer on where Parliament will take the debate. The most likely outcome is a consensus gradually forming around avoiding a “no-deal” Brexit. We continue to think all other outcomes would require an extension of Article 50.

Portfolio implications?

As expected, UK assets have not responded much to the past week’s news. We think ruling out a no-deal should put a floor under sterling, gilt yields and UK equities. Portfolio positioning has not changed – we remain overweight sterling and underweight UK bonds and UK equities until uncertainty over the direction of Brexit is lifted.