Page 6 - ISQ UK JANUARY 2020

INVESTMENT STRATEGY QUARTERLY

Brexit - The Final Countdown

31 JANUARY 2020 30 JUNE 2020 31 DECEMBER 2020

Finalised Withdrawal Deadline for End of
Agreement/Brexit Requesting Extension Transition Period
Deadline of Transition Period (Unless Extended)

However - quite literally - there is some hope. December’s UK conventional earnings, cash flow or dividend based UK
purchasing managers’ indices data showed an improvement investments look attractive enough, however sustainable
between the initial ‘flash’ report released at the end of last year inflows will only occur if the lapsing of one Brexit logjam or cliff
(when most of the polling was undertaken before the general edge is not effectively replaced by another in the form of a
election result) and the ‘final’ report which had data throughout lacklustre conclusion to those very specific ongoing trade
the month. Similarly, respected measures of consumer discussions. The devil has always been in the details with Brexit
confidence showed some tentative hopes of improvement in - and this will very much remain the case for UK economic and
data published in late December. One survey even observed political scene watchers as well as all interested investors in
that ‘households said that they were feeling more optimistic 2020.
about the future and increasingly committed to making large
purchases’. Given that consumer spending is typically over two- In short, have policymakers learnt that a bit of flexibility and
thirds of an established developed economy such as the UK, pragmatism can go a long way - in combination with a workable
this does provide some further hope. Parliamentary majority - in not only providing some clarity but
also avoiding the dreaded cliff-edges? Naturally such thoughts
And the Bank of England appear unlikely to upset the apple apply not only to UK trade policy, but those of other nations
cart. Consensus expectations are for no change in UK interest around the world too. After all, in the modern global economy,
rates in the foreseeable future despite the imminent change of even a post Brexit UK economy would be foolish to have too
Governor from Mark Carney to Andrew Bailey. By contrast, the many isolationist instincts. On balance - and influenced by
other classic policy lever - fiscal policy covering government tax attractive UK equity valuations versus both the local fixed
and spending initiatives - appears to be in a rude stimulus- income market and general global equities - the glass for 2020
friendly health with a number of budget deficit boosting should be watched closely but should also be viewed as being
policies being initiated in the first few weeks of the new half-full.
parliamentary term. Another angle with some reference to
fiscal policy which has gained predominance in the last couple
of months is regional policy. The new government’s ‘one nation’ KEY TAKEAWAYS:
focus could encourage some new growth stimulus.
Sustainability however is likely to come from the business • Many additional months of negotiation will be
investment and entrepreneurial zeal that is not solely required to finalise the regulations and rules
encouraged by government spending and tax breaks. associated with the Brexit divorce.
Nevertheless offering these initially is a start. • Despite dull 2020 economic growth forecasts,
there is some hope for the UK economy.
Overall, at-the-margin policy remains loose and the Pound -
whilst above the levels of last summer - has not risen • Overall at-the-margin policy remains loose and
significantly enough to constrain exporters. Therefore a the Pound has not risen significantly enough to
combination of easy comparisons, some improvement in constrain exporters.
business and consumer confidence levels plus loose monetary • Overall at-the-margin policy remains loose and
and fiscal policy, is providing a supportive backdrop for global the Pound has not risen significantly enough to
investors to consider closing the significant underweight constrain exporters.
position they have in UK equity positions in 2020. On

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