• HHW

ONE IN A MILLION?

As a fund manager, investing more than £4 billion in something where the chance of it happening was a million to one against, would probably get you fired. At the very least you would be closely questioned by your trustees as to why you thought it was a good use of their money (these things are always done with other people’s money after all). Two possible answers spring to mind. First – it is insurance against something soooooooo terrible that we just have to spend the premium.


Alternatively – and this is probably what most managers would argue – I have better insight than the market and know that the chances aren’t really a million to one against, they are in fact very much less than that. The UK’s new PM, Boris Johnson hasn’t admitted it but presumably that’s why he is spending over £4bn to plan for a no-deal Brexit. Though he professes his desire for a deal and says he is only keeping “no-deal” on the table as a powerful negotiating tactic, his actions e.g. his choice of cabinet and the fact that he is already highlighting who would be to blame for it (the EU and/or the Irish and all the “Doomsters”) suggest otherwise. The actions of investors in Sterling suggest they believe Boris’s actions more than his words too. The Pound has been sold off heavily, falling to its lowest level against the USD since the 2016 referendum. While a weaker currency might help to mitigate some of the post-Brexit competitive weaknesses of exporting firms, it will do nothing to help the large number of firms who import components or finished products for sale in the UK.


If Boris is to prove the “Doomsters” wrong on the economic impact of a nodeal exit, he will need some help. A quick trade deal with the US might be a start, though that may not be popular with UK farmers as it will almost certainly pave the way for imports of e.g chlorinated chicken and other mass produced, or genetically modified foodstuffs. Another hope was that many of the forty countries who have existing free trade agreements (FTAs) with the EU would simply roll these over. So far that has been a hard task. According to the Institute for Government, only thirteen countries have agreed to do so but even in these cases, they have not finalized the arrangements and so these agreements may be at best, incomplete.


Even if “no-deal” is where we are headed, Boris will have to negotiate or bulldoze his way through Parliament. Before we get to “no-deal”, therefore, the UK may well have to face either a constitutional crisis or a general election. Odds of this being the shortest government in UK history? A lot less than a million to one.

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