"I hope the tears don’t stain the world that waits outside”
Where Did It All Go Wrong, Oasis
Last week, we suggested that through the noise and hyperbole from participants and commentators, fuelled by the emotive and binary nature of the context, that we continue to believe that there will be a deal between the EU and the UK on the Withdrawal Agreement. This week, with the full focus of the world’s financial markets (and other interested parties) upon the UK, the PM attempted to agree a procedure for facilitating transition and avoiding a no-deal Brexit. While this was never going to be an easy task, the situation that followed was disappointing on many levels.
Following the agreement between UK and EU negotiators on a basis to underlay the process for negotiation of a future trading agreement - the Withdrawal Agreement, the Cabinet meeting to ratify the deal ended in an incredible display of criticism and discourtesy from both sides, and later from all corners of the house. "It is clear, Mr Speaker, that Brexit is bad for Britain” echoed from the chamber. From our standpoint, however, it is the political process (and perhaps even its protagonists) that are acting in a way that is ‘bad for Britain’. All but a few questions criticised May’s plan to enable talks on a future trade relationship. None offered credible alternative.
"When you strip away the detail, the choice before us is clear: this deal, which delivers on the vote of the referendum, which brings back control of our money, laws and borders, ends free movement, protects jobs, security and our Union; or leave with no deal, or no Brexit at all.” - Theresa May
We have no overwhelming concerns with the proposition as it appears. However, the concerns of Parliament (and the source of several resignations, including Brexit Secretary Raab) are threefold (i) that the backstop (if entered into at all) requires NI to comply with certain regulations of the Acquis covering goods, that are seen by some as placing a de facto regulatory border between NI and the UK and thus undermining the constitutional integrity of the UK. Personally, I think that is a exaggeration of the reality. (ii) that in the Backstop arrangement (again, if it is ever used), the ECJ oversight is dominant in dispute and regulation, and thus not consistent with the objective to ‘take back control’. Lastly (iii), and most importantly, the fact that the decision to leave the arrangement or terminate the backstop is a decision that must be reached jointly and thus, it is suggested, it could lead to an indefinite period of transition (under ECJ rule EU regulatory compliance).
"They only seem to come and go away” Stand By Me, Oasis
Between now and the EU Summit on 25th November, the UK and EU will engage in intensive negotiations to attain a political agreement on the future framework. While this cannot yet be in the form of a legal text (as the UK cannot enter into a legal agreement with the EU of which it is part), May suggested that it will form a comprehensive framework of intent.
Nobody claims that the framework that the PM is offering is ideal. By definition, the wide spectrum of national opinion was never going to be satisfied concurrently in a single strategy. However, the plan provides continuity, stability, and in broad terms the delivery of all the stated objectives (albeit for some, far too slowly). Furthermore, with no credible, deliverable alternative proposition from either side of the House, we retain the view that May’s deal will ultimately pass the House. In addition, it is worth bearing in mind that the broad tone of the response from UK business is positive, at the very minimum in respect of it removing uncertainties.
The elephant in the room here is that May must still be around in order to deliver on her plan. There is the potential for, perhaps significant, volatility and uncertainty in the short term but beyond that, in our view, the outlook is for the UK and for GBP remains positive.