Brexit Update: We're Out, Aren't We?

Brexit Update: We're Out, Aren't We?

by Thomas Quinn on Feb 25, 2020

The Economy Stock Markets & Investing

Reading Time: c.4 mins 

So, it finally happened – the UK officially left the EU last month.

This surely means the worst is behind us and we can crack on with the rest of our lives, right?!?

Not exactly. In our opinion, all that has changed is that we know with certainty that Brexit is going to happen. And if Boris Johnson sticks to his election pledge, then December 31st 2020 will be the exit date and crunch time for the future UK/EU relationship.

Cue the next phase of negotiations. These new negotiations on the future relationship are critically important for the future financial stability of the UK, the EU and the global economy (not to be overly hyperbolic)! 

Johnson, the archetypal bull in a china shop, enters Brussels to negotiate with EU leaders this week. Expect backtracking on promises, an extremely hard line stance, and a newly refreshed team (Team XS) who all voted Leave in 2016 who are likely to have a unified position that the UK doesn’t need an immediate deal with the EU. Whether they genuinely believe a ‘hard Brexit’, where the UK falls back to WTO (World Trade Organization) rules, is sustainable or not, it’s at least a great negotiating hand however, the UK does not hold all the cards. 

Although the EU has a £60 billion budget hole when the UK leaves, the EU will remain the single largest trading block in the world, which the UK is already aligned to, and it’s the UK’s largest exporter (45% of all UK exports, 2018). As well as the UK being 5-7 years away from negotiating any new trade agreement with any other nation/s.

Arguments aside on who holds the aces in the negotiating deck, both parties are united on wanting a deal. 

On Tuesday the EU stated that their main objective is to secure a tariff-free, quota-free trading relationship between the two sides starting next January. 

Team XS echo the same sentiment they want tariff-free, quota-free access to the EU however, with none of the conditions on EU regulations. 

So both sides enter negotiations this week wanting to ultimately achieve the same outcome, a free trade deal however the very nuances of the deal are yet to be ironed out. Thus, expect speculation; Brexit "specialists" to throw their two pennies worth of fear and another 10 months (at least) of headlines on rifts in the camp, lies, betrayal and deadlocks! 

So, what does that mean for you?

Well, presumably you are either pleased or disappointed, depending on your perspective and I suspect, like me, relieved the deadlock has been broken, regardless of which side you’re on. Don’t get too excited yet, because in our opinion, the true test is still to come. 

I have no idea what GBP will do this year or next, but with certainty often comes less volatility. Do we expect a stronger GBP? With a favorable UK/EU trade agreement comes opportunity for the UK and to think a strengthening GBP from its current £1:$1.30 price wouldn’t be wildly overestimating the potential of Sterling. This is not a forecast, because there is so much more at play, not to mention the fact that we do not make forecasts. However, once we are out-out (i.e. out of the EU and out of the Single Market and Customs Union), the deal is done and a future path is established – Brexit uncertainty will be all but over. 

If your assets sat in GBP while you waited to convert to USD then I don’t think you are going to see much improvement in the near future. Expect volatility as we move through the upcoming months. But other than that, it is business as usual. Remember the UK, as important as it is globally and to us personally, is still relatively insignificant in the grand scheme and, for our clients at least, you are globally diversified, fully invested, and not overly exposed to any one country or region. 

As always, if this is causing you any anxiety and you'd like to chat it through with us, please don't hesitate to reach out: +1 646 201 4865 / info@taylortaylorusa.com

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