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Brexit’s turning point
20th January, 2020

December provided a turning point for the UK as the Conservative Party won the General Election. Prime Minister Boris Johnson succeeded in securing an 80-seat majority in the House of Commons, clearing the way for his Brexit deal. MPs voted by 358 to 234 in favour of the EU (Withdrawal Agreement) Bill, which will proceed to Committee Stage in January.

• Brexit’s transition period will not be extended
• The pound strengthened against the US dollar
• UK mid-caps outperformed blue-chips over 2019

The bill has been amended to reject any extension to the transition period, sparking fresh concerns over the possibility of a no-deal Brexit. The transition period is scheduled to end on 31 December 2020.

New President of the European Council Charles Michel tweeted: “EU is ready for the next phase. We will negotiate a future trade deal which ensures a true level playing field”. Meanwhile, US President Donald Trump tweeted: “Britain and the United States will now be free to strike a massive new Trade Deal after BREXIT. This deal has the potential to be far bigger and more lucrative than any deal that could be made with the EU.”

The pound surged to its highest level since March against the US dollar but dipped amid fresh concerns over the possibility of a no-deal Brexit before rallying again to end the year at US$1.33. The Confederation of British Industry (CBI) warned that British business had “had enough of uncertainty”, and urged the Government to agree on a good trade deal “as quickly as possible”, saying “speed and ambition can go hand-in-hand if the right approach is taken”.

Medium-sized companies outperformed their blue-chip counterparts during December. Over 2019 as a whole; A strong pound pushed down sentiment towards blue chips. This generated a sizeable proportion of their earnings overseas. Therefore, sterling’s rally boosted the FTSE 250 Index – which is more domestically focused than the FTSE 100 Index – to a new all-time high. The FTSE 100 Index climbed by only 0.1% during December but rose by 12.1% over 2019. In comparison, the FTSE 250 Index rose by 5.1% in December and by 25.0% over 2019.

Although the Conservative Party’s sizeable majority in the House of Commons is likely to reduce political volatility, credit rating agency Fitch believes that Prime Minister Boris Johnson will still have to balance the concerns of voters in northern England and the midlands with the Conservative Party’s “hardline” Eurosceptic element when negotiating with the EU.

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