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We will always have scone and jam

The Daily Telegraph trumpets a landslide Conservative victory after the best results since 1987. With neither party popular, it is a testament to the appeal of the Labour Party. The Remainer vote is now fatally weakened. The consequence is that the hard-left firebrand, Jeremy Corbyn, says he will quit.

The Brexit Bill is hence set to pass further readings starting on the 17th of December when parliament returns while Brexit Day is on the 31st of January 2020—a day that will enter into British history. The terms of Britain’s relationship with the EU will stay the same until the 31st of December 2020. Any extension request must be made no later than the 1st of July, which may well happen.

The UK will then be free to negotiate new deals, even as it depends heavily on the EU deal, and to move politically closer to the United States as well as the Commonwealth. The UK will discover the joys and perils of going it alone instead of being part of a club when dealing with such heavyweights as the US (“America First”), China and, to a lesser extent, Russia. Negotiations with the US promise to be very difficult as America will take a divide and conquer logic, pushing the UK away from a better EU agreement: If Britain wants access to US markets, then it can’t maintain exclusivity with the EU. Given that the UK is an island separated by a sunken continent with continental Europe, this is set to be a very difficult negotiation. For example, one aspect that has already come out is America’s desire for access to the NHS. This means little per se, but an interview with the US ambassador showed that he was setup—everything is on the table. As an opening gambit, this is a slightly frightening prospect; the narrower the scope of the agreement, the faster it can be reached. What is likely to happen is that the UK will concentrate on the EU deal while proceeding with others on the side which can later be modified depending on the outcome of EU agreements.

The UK has gone through many changes during its modern history and this is just a bump in the road. Greater clarity will begin to normalize investments, though the economic shock is still percolating throughout the economy and we expect the Bank of England eventually to ease. Sterling should consolidate after a rally of 1.7% overnight. At a guess, it will take another quarter for the shock to start to dissipate.

Older generations will fade away and divisions between Brexiters and Remainers will evolve over time leaving the UK to potentially rejoin the EU again two decades down the road. It is a strange thing that Europe’s capital is leaving the European Union.

Sterling rallies 1.7% - source Bloomberg below

Nordea , December 2019

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