‘After continually refusing to rule out suspending the UK Parliament – known as prorogation, 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 14th October. This means that there is limited time available 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 by those opposed, bringing forward a fight that would likely have otherwise occurred in October. Any move by the courts to prevent the action risks the UK moving into the realms of a constitutional crisis.
The PM’s move is likely to precipitate a no-confidence vote in his government as soon as parliament returns after its summer break at the start of September. 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. They must either bring legislation to prevent this type of Brexit or find a unity candidate to lead a new administration within the coming days. Expect to see arcane parliamentary procedures used by both sides towards either outcome. Summer holidays are definitely over for MPs, now comes the shouting.
The reaction so far in the pound has been fairly muted given the potential outcomes. While weaker, 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 benefited from the weaker currency, outperforming other European markets so far and maintaining the usual relationship of a lower pound being good for the internationally exposed market.’
Oliver Blackbourn, Fonds Manager, Janus Henderson Investors