'Spaghetti junction': 10 voices on May's historic Brexit loss

Theresa May’s Brexit deal was voted down in the House of Commons by a historic margin of 230 votes last night.

With three months left before the UK is set to leave the EU, a dark cloud of uncertainty hangs over the markets.

We share the views of 10 leading voices in the worlds of wealth and fund management on what might lie ahead.

Anthony Gillham

Head of investments, Quilter Investors

Spaghetti junction 

Numerous permutations still remain, with no clarity about which is most likely. This is not a fork in the road for Brexit, but a spaghetti junction.

On the basis that up until now ‘no deal’ has been treated as a relatively unlikely prospect, the coming weeks could prompt significant shifts in UK asset prices.

If the likelihood of a no-deal is seen to increase significantly – many analysts were predicting just a 5-10% likelihood of a no-deal outcome – then it could move markets.

Richard Buxton

Head of UK equities, Merian Global Investors

More QE

Even those expecting the government to lose might not have forecast the biggest defeat since the 1920s.

In the event of some form of the government’s deal ultimately garnering sufficient support to pass through the House of Commons, I believe sterling would once again strengthen, although I do not see it regaining pre-referendum levels versus the US dollar or the euro; a strengthening in the region of 5-8% would seem more likely than the approximately 15% rally by the pound that would be required to regain those pre-referendum highs.

If a deal can ultimately be agreed on, I believe we may see the Bank of England hike policy interest rates up to three times over the course of 2019.

Conversely, if the UK does leave the EU without an agreement, I would expect the Bank’s Monetary Policy Committee to move rapidly to cut interest rates from their already-low levels.

The resumption of monetary stimulus, in the form of quantitative easing would, in my view, be a possibility.

Stephanie Kelly

Political economist, Aberdeen Standard Investments

Do nothing 

On the one hand, the vote of no confidence steers markets towards the possibility of Labour’s softer Brexit position, which would support sterling, but investors are also going to fret over Labour’s more controversial policies like nationalisation.

Elections tend to cause sell-offs in markets because they’re inherently uncertain events, but the UK situation is more complex than a normal vote. I’d expect sterling to be volatile until the result of the no-confidence vote is known.

With the DUP saying they’ll back the Conservatives, the no-confidence vote is dead in the water, unless there is a big rebellion within the Conservative party.

The wisest thing for investors to do in the short term is nothing.

Karen Watkin

Multi-asset portfolio manager, AllianceBernstein

Under pressure

Last night’s resounding government defeat signalled crunch time for the Brexit process.

A type of deal or, even more, a cancellation of Brexit, would probably see an immediate boost to sterling, with gilts also likely to respond well in the near term.

It is also likely to be advantageous for European equities with one major political crisis having been avoided for the continent, though they continue to face their own challenges of slowing economic activity and threats of further trade wars with the US.

Until there is more clarity of the path forward, the stock market is likely to remain under pressure as the threat of greater uncertainty hinders investment and damages business and consumer confidence.

Chris Cummings

Chief executive, Investment Association

Regulatory cooperation 

It is critical that every effort is made to avoid a no-deal exit from the EU, and the potential cliff-edge effects that this could bring.

While asset managers have been working on no-deal contingency plans for a long time and are prepared for this scenario, it still remains the least desirable option for our industry, and for the millions of people who entrust us with their pensions and savings.

It is imperative that the regulatory co-operation agreements are finalised so that firms can plan with certainty and the savings of millions of people in Europe can continue to be invested wisely and managed across borders.


Eric Lonergan

Fund manager, M&G Investments

No-deal fears muted  

The relatively trivial response of sterling to the overwhelming rejection of May’s deal by parliament suggests to me that markets are not particularly troubled by Brexit. What exactly does this mean?

1) The range of outcomes is relatively clear and not particularly traumatic: a no-confidence vote, a suspension of Article 50, a Norway deal, etc. The UK economy is already being affected by Brexit and is likely to continue to be, but this is in the price of gilts and the exchange rate. No one expects the economy to surprise positively.

2) The one scenario that poses a more material threat is a no-deal exit. The consensus, however, is that this is one area where parliament is united in its opposition, so it is unlikely. Furthermore, I sense that fear over a no-deal exit is now more muted.

David Zahn

Head of European fixed income, Franklin Templeton

Article 50 extension 

If Article 50 were rescinded we’d foresee a very positive response from financial markets, both in the UK and across Europe.

Bond markets would likely sell off, sterling would rally and UK equities would probably go up. But this seems to us the least likely option.

The second option – extending negotiations – seems to us the most likely outcome. But it brings with it more uncertainty. Any extension has to be agreed on unanimously by the other EU members. 

We estimate the chances of a no-deal Brexit at around 30% to 35% currently. A no-deal Brexit would likely mean heightened levels of uncertainty for three to six months as things get worked out. 

Neil Dwane

Global strategist, Allianz Global Investors

Higher 'crash out' hurdles

The sheer scale of May’s defeat once more underlines the deep divide among MPs and suggests that achieving a majority for a deal in a potential second vote will remain very challenging – unless we see material concessions by the EU or changes in the government’s position.

We think an extension to the March 29 deadline is the more likely of potential outcomes. The main question is the basis on which the EU agrees to this extension.

While a no-deal Brexit remains a potential outcome, the operational hurdles for crashing out on 29 March have risen following (i) the European Court of Justice ruling that the UK can unilaterally revoke Article 50 and (ii) a parliamentary vote giving MPs more control over negotiations.

Jonathan Bell

CIO, Stanhope Capital

A mystery 

The large defeat implies that even a tweaked agreement is unlikely to pass in a future vote and has led to further confusion.

The government will probably win tonight’s no-confidence vote. What follows is a mystery, but we believe that the likelihood of a hard Brexit is reducing and we may see a further rally in sterling as a result.

As the possibility of remaining in a customs union increases, UK equities should also benefit slightly despite the adverse implications of a stronger pound.

Omar Ali

UK Financial Services leader, EY

Firms must prepare for no deal 

The result this evening does not change the outlook for the City. The City has been planning on the basis of no deal for some time and made clear it would need certainty to allow it to change tack.

While this result was widely expected, it means there is still no clarity, with just 73 days until the planned exit date.  

Firms have no choice but to fully implement their no-deal plans. EY’s most recent survey of FS firms found nearly a quarter of respondents (24%) already do not believe they have time to execute their Brexit plans by March 2019.