Cl ff-edge Brex t
Azad Zangana, strateg st, Schroders
The risk of a “no-deal” or “cliff-edge” Brexit is probably as high as it has ever been. At the same time, the need for a general election or a second referendum to break the deadlock in parliament seems more apparent than ever. Based on the last ten opinion polls of voting intentions, the Conservative Party looks set to retain its position as the single biggest minority party in a general election. However, the Conservatives are projected to lose seats and would, therefore, require both the DUP and the Liberal Democrats to form a coalition. Moreover, it is worth remembering that opinion polls could shift during a campaign, and we doubt recent events will garner support for the government, even if Theresa May steps down and is replaced by another candidate. The opinion polls that have offered three outcomes for a possible referendum - “remain”, “deal” and “no deal” - have consistently found that the support for Brexit is split between the latter two, leaving “remain” as the most supported option by a big margin. We believe that the possibility of a remain result following a second referendum and the prospect of a delay to Brexit have helped boost the pound in recent days against the U.S. dollar and the euro. Markets seem to be pricing in a greater probability of a “soft Brexit”. However, we believe that investors are getting ahead of themselves. The main uncertainty now is how the Labour party will react if they fail in their bid to trigger a general election. Will Corbyn work constructively with the government to end the deadlock, or will he continue to obstruct the process? The Labour Party’s six tests for Brexit focus on the future relationship, which are irrelevant at this stage of the negotiation. Though not the official position, many in the Labour Party, including Shadow Brexit Secretary
Keir Starmer and Deputy Leader
Tom Watson, believe that a second referendum should be the next option.