Whichever side of the EU membership debate you supported in 2016, one thing the vast majority of people seem able to agree on is the “other-worldly” quality that has characterised our national and political discourse in recent years. Setting aside the symbolism that some have attached to the date, after Friday’s withdrawal of the UK from the EU, and the two parties have entered the transition period, the absolutely key issue from an investment and economic perspective will be to understand how the thorny topic of the “future relationship” will be resolved.
My own view is that, ultimately, cooler heads will prevail and that, behind closed doors, UK decision-makers are not seriously considering arriving at the end of the transition period with no further plans or measures in place, given widespread recognition of the economic damage that would ensue. The Chancellor’s recent announcement at Davos that the government’s “first priority is getting an agreement with the EU” would seem to lend credibility to this argument. How the detail and results of the negotiations will emerge may ultimately have more to do with how ministers perceive that the debate will play out in public opinion than anything else. Still though, having a functioning government does strengthen the UK’s negotiating hand; a series of compromises by both sides would seem to be a likely, albeit untidy, outcome.
Regardless of the catchy and much-repeated soundbite regarding getting Brexit “done,” most realists recognise that this is just the start of a multi-year process. One welcome fillip of the dawning realisation that Brexit won’t simply be “done” from one arbitrary date to the next, is that if the stock market decides this is going to be a long, drawn-out and iterative exercise, with no credible risk of a “cliff-edge” exit, then its relevance to markets and significant parts of the economy could fade quite quickly. Such a result could be a real boon for UK equity investors, even if the route to this point has been long-winded and tortuous. Watch this space, and be ready to act; prudent investors – both international and UK domestic – will certainly be doing so.