Agree To Disagree

Brexit uncertainty spooks investors

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What's going on?

On Sunday, European Union (EU) leaders gave their unanimous backing to the Brexit deal negotiated by UK Prime Minister Theresa May. But the hard part may be yet to come…

What does this mean?

For the past 18 months, British and EU officials have been hammering out the terms of the UKs withdrawal from political and economic union with Europe. Now, with the EU happy, May faces the difficult task of selling the deal to the British Parliament ahead of their own vote next month.

Why should I care?

For markets: Crunch time.

If May can get the deal through Parliament, the UK and EU will enter a transition period giving the two sides time to discuss their future relationship on little things like trade. Removing the prospect of huge default trading taxes and supply chain disruption for businesses would likely give investors greater confidence in Britains economy, boosting the value of EU-trading companies share prices and the pound (tweet this). But itll be an uphill battle. Rival political parties in Britain are uniting against the deal and even allies are proving truculent. If May fails to secure UK backing for the no alternative deal, businesses might cut investment in the country and the pound could sink further.

The bigger picture: A fork in the road.

At some stage the dust will settle and the UK will be able to focus on a new direction. Theres been much discussion of a trade deal with the US, and calls from some to cut regulations and taxes to create a more business-friendly economy. Some believe that approach would draw investors to British shores and unleash an economic tiger hitherto defanged by the EU. But an alternative future could see the current government collapsing and Britains socialist political opposition taking power. They want to take greater public ownership of things like rail and energy companies; and, if voted in, would likely spook investors even more than Brexit uncertainty.

Originally posted as part of the Finimize daily email.

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