Votes in the UK parliament this week so far have left the cause of Brexit as uncertain as ever. Here are some wealth managers' reactions.

Members of Parliament voted by a huge majority earlier this week to reject UK Prime Minister Theresa May’s proposed withdrawal plan for leaving the European Union. A day later, MPs voted by a smaller majority against the UK leaving the 28-state bloc without any sort of deal at all, putting it under the trade framework of the World Trade Organisation. As a consequence, talks turn towards the idea that the UK might try and delay Brexit beyond the due departure date of 29 March. Some commentators argue that the UK might hold a second referendum to break the impasse, although there will be debate over whether this proves that legislators are not shouldering their responsibility to honour the 2016 referendum result for the UK to leave the EU. One source of concern is that a reversal of Brexit, perhaps caused by voter fatigue, would fuel political extremism.

This publication has studiously refrained from taking sides on this issue, knowing that the wealth management industry is not united, as some might presume, behind one outcome. This news service has met private bankers and wealth managers who are passionate about the UK staying in the EU whatever its faults, or more lukewarm about the EU, or positive about the case for Brexit.

After the votes this week, here are some reactions from wealth managers to the UK political situation. The editorial team knows that readers from outside Europe are interested in what is happening, not least because the dramas in one of the world’s oldest parliamentary democracies retain a fascination far and wide. If readers want to add their views, please email tom.burroughes@wealthbriefing.com

Dean Turner, UK economist at UBS Wealth Management
As anticipated, MPs have rejected the no-deal departure route, although there was certainly more excitement this evening than there should have been. While we must remember that the vote is not legally binding on the government, it will indeed carry great political significance.

The Prime Minister is attempting to apply significant pressure on the Brexiters to back her deal when she presents it for a third time next week. The threat of a long extension if the deal is not passed could persuade enough MPs to rally behind her, but the outcome remains on a knife-edge.

The pound’s movements continue to be driven by politics instead of economics and, as a consequence, the currency has been building on its gains from earlier in the day. But be in no doubt that the Brexit process remains extremely fluid, with many twists and turns ahead. Thus, we don’t advocate taking directional views at this time and advise continuing to hedge downside risks.

Stephanie Kelly, Aberdeen Standard Investments senior political economist
A rejection of no deal tees up an extension of Article 50 and we’ve seen sterling rally today to price in that eventuality. Sterling’s rollercoaster will continue in the days ahead though. Key factors determining the size of any moves are whether the EU grants an extension, how long that extension would be, and the possibility that Theresa May will run out of political road and we end up with a snap general election.

One of the big issues occupying investors is exactly what reason the UK is going to give the EU for wanting an extension to Article 50. The trouble is that, with Parliament so split on the issue of Brexit, it isn’t clear who exactly has enough authority to present a clear, compelling reason. This will obviously frustrate the EU and they will demand concessions but it’s extremely unlikely that the EU would ultimately refuse to grant an extensions. The costs to either side are still too high.

Simon Ward, economic advisor at Janus Henderson Investors
Following yesterday’s [12 March] second heavy defeat for her European Union withdrawal agreement, Prime Minister May has lost control of the Brexit process. This has increased the risk of a no-deal Brexit, in spite of parliamentary opposition to such an outcome. 

There are three ways to avoid a no-deal Brexit. The first is for the hardliners of the Conservative European Research Group (ERG) and Northern Irish Democratic Unionist Party (DUP) to abandon their opposition to May’s deal. They won’t. The ERG hardliners desire no deal. The core members have fought for a complete break from the EU for 30 years and have never compromised with the party leadership. They would prefer Brexit to go down and to cry betrayal rather than accept what they view as a watered-down outcome.

The second possibility is that a House of Commons majority coalesces around a new agreement involving a softer form of Brexit, in which the UK stays in the customs union and single market. Such an initiative, however, requires a government to push it forward. A Conservative-led administration attempting to do so would split the party irretrievably and lose its majority. It is not even clear that a majority exists across the Commons for a soft Brexit – MPs representing leave constituencies could find it impossible to support an agreement allowing unlimited EU immigration, which was a key issue in the referendum campaign.

The third possibility is a long extension to Article 50 to allow time for a new consensus to form, possibly involving another referendum with several options for voters to rank. Again, many MPs would regard this as failing to respect the original referendum result and would oppose it. More importantly, the EU might not accede. A long extension would require the UK to participate in European Parliament (EP) elections in May, possibly resulting in an influx of troublesome UK MEPs from a new Brexit party. It would also allow the UK more time to prepare for a no-deal exit, thereby reducing the EU’s leverage in future trade talks. Many EU businesses, moreover, have already implemented contingency plans for no deal and might prefer this to go ahead this year rather than suffer a further long period of debilitating uncertainty.

A reasonable central scenario would be that the UK requests and is granted an extension of Article 50 until June, avoiding a need for UK participation in the EP elections. May could use this extra time to heap pressure on the ERG/DUP to accede to her deal, but with no success. Parliamentary attempts to forge an alternative deal, meanwhile, run aground. Preparations continue for a no-deal Brexit on both sides of the channel, with growing political and public awareness that such an outcome is likely.