Edward Park, Deputy CIO at Brooks Macdonald, comments on Wednesday parliamentary votes…
Wednesday saw many twists as the indicative vote options began to be revealed. Theresa May’s offer to step aside as Prime Minister should backbenchers support her deal initially allowed the government’s bill to regain some life, supporting sterling, however post the announcement that the DUP would be voting against the current bill this rapidly receded. Whilst parliament did not reach a majority on any of the available options the ‘softer’ proposals of a customs union or a second referendum were the closest to passing. Oliver Letwin has suggested that a runoff will take place on Monday to focus on the shortlisted proposals but the mechanics of this remains to be seen.
Theresa May’s decision to offer her premiership in return for Meaningful Vote support was a gamble that needed to bring her party and the DUP with it. For Labour backbenchers who have rebelled and supported the deal this now means that further support is effectively for a new Prime Minister without a General Election which may prove far less palatable. All eyes are therefore likely to fall on the DUP over the next few days as Theresa May attempts to keep her deal alive.
Our base case is that we will either see a deal cobbled together or a long extension whilst Conservative MPs, and Parliament, face the question of what they can agree on. Given this, sterling is likely to remain highly dependent on the relative probabilities of a soft Brexit or no deal outcome. There is unlikely to be much clarity in the short term and as a result sentiment towards UK domestic equities and the UK currency are likely to remain subdued and rangebound.