02 Sep 2019
Oliver Blackbourn, a portfolio manager on the UK-based Multi-Asset team, discusses the abrupt escalation in hostilities between the UK Parliament and a bellicose Prime Minister.
After continually refusing to rule out suspending the UK Parliament – known as prorogation, Prime Minister (PM) Boris Johnson has now done so, using an administrative process by asking the Queen to renew the parliamentary session. His actions will result in the acceleration of the political efforts to thwart a no-deal Brexit by those set against leaving the European Union without some form of agreement. However, Johnson’s actions leave limited time for any counter moves against him to make their way through parliament. Given the historical nature of the events, UK assets are so far seeing a fairly muted reaction.
While a standard act for a new government to set out its legislative agenda, the prorogation process means that parliament will effectively be suspended from mid-September to 14 October. This means that there is limited time available prior to the 31 October Brexit deadline for those opposed to a no-deal Brexit to bring legislation to prevent it occurring. Therefore, there is likely to be an acceleration of legal challenges to the planned suspension by those opposed. Any move by the courts to prevent the action risks the UK moving into the realms of a constitutional crisis.
Viewed by many opposed to Brexit as an assault on democracy, the move to prorogue parliament is in effect simply bringing forward the opening rounds of the inevitable fight in October. This may be just a tactic by the new government to ramp up pressure on the European Union (EU) to achieve a more favourable deal; however those opposed to “no deal” are unlikely to risk the alternative. There are a number of points that will continue to make clarity for the opposition difficult to achieve:
1. While PM Johnson’s government seemingly has a clarity of purpose in aiming to leave the EU on 31 October no matter what, the opposition is a fragmented group of parties with little else in common
2. Any legislative efforts to prevent a “no deal” can have uncertain effects – legislation passed earlier in the summer was designed to prevent prorogation after all
3. Moves to seek another delay may not be taken particularly well by an EU fed up of Britain’s prevaricating, particularly given that there is no clear alternative proposal
Therefore, there is a high probability that PM Johnson will face a no-confidence vote in his government at some point before 31 October, either before the suspension of Parliament or immediately following. The challenge for those opposed to the government’s actions lies in their ability to effectively organise the apparent majority against “no deal” within the time constraints now in place. If they are unable to find an acceptable legislative outcome, they will need to agree on a unity candidate to lead a new administration. Otherwise, toppling the current administration will do little if it leads to a general election, which, given the date of the vote is chosen by the incumbent government, would almost certainly be held after the 31 October 'Halloween' deadline. Expect to see arcane parliamentary procedures used by both sides towards either outcome. Summer holidays are definitely over for Members of Parliament, now comes the shouting.
However, the reaction so far in the pound has been fairly muted given the historic events. While weaker, at the time of writing sterling remains above its mid-month lows. UK gilts have rallied, despite inflation expectations rising, as concerns about real growth have dominated. Despite this, the FTSE 100 Index has generally benefited from the weaker currency, maintaining the usual relationship of a lower pound being good for the internationally exposed market.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
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