WeeklyWatch – UK buffeted by Brexit turmoil

Monday 18th March 2019

Stock Take

Brexit breakdown

This week we’ve seen a number of developments around the future of Brexit, many of which could easily be said to baffle the curious onlooker. It started with MPs rejecting the Prime Minister’s deal – again – then the Commons voted against leaving the EU without a deal. Further to this, two amendments proposing lengthy delays to Article 50 were also voted down, which was then followed by MPs rejecting a second-referendum amendment – a proposal for Parliament to take control of the legislative agenda (which lost by only two votes), and a labour amendment calling for the delay in Brexit to enable a different approach.

In the end, a government motion was passed to extend the Brexit process, allowing more time for a deal to be worked out.

It wasn’t just the deals posed that made us scratch our heads this week; the people behind the theatrics also had us questioning what was going on. One Brexit minister, who had resigned over Theresa May’s Brexit deal, has now voted in favour, and the current Brexit secretary told the House to vote with the government on the Brexit-delay amendment, to only go and vote against it himself.

Both members of the Cabinet and Shadow Cabinet defied their party whips but remained in post, and yet claimed that collective responsibility remained a duty. And finally, the Prime Minister didn’t take into consideration Einstein’s definition of insanity – trying the same thing over and over again but expecting different results – when she concluded that the answer to the fourth-largest government loss in parliamentary history was to plan for a third vote, which some think she may get through. Absurd?

Economic highlight

Despite the clear mayhem in UK politics at the moment, the reality of economic and financial life for the country isn’t that bad; in fact, the past three years of political culs-de-sac haven’t been such a bad time to invest in our country.

“Odd as it may seem, the period of huge political uncertainty and slower economic growth triggered by the referendum result has been a pretty good time to invest in UK-listed companies,” said Phil Woodcock, Head of Investment Communications at St. James’s Place. “Despite higher volatility, the FTSE 100 is up some 14% since the day of the referendum. Even the FTSE 250, which is far more exposed to the UK economy, has risen by more than 12%.”

“The UK equity market remains undervalued in historical terms,” said Neil Dobson of Invesco Asset Management. “Once there is a Brexit deal – a divorce agreement – and greater clarity, we expect that valuation gap to narrow.” This is supported by the FTSE 100 enjoying a strong week, partly on the belief that a no-deal outcome had become unlikely.

Spring statement

Although this was somewhat overshadowed by all the Brexit happenings and a cut to growth forecasts, it contained good news – public borrowing has fallen to 1.1% of GDP, 600,000 new jobs have been proposed by 2023 and a ‘deal dividend’ of public spending has been agreed post-Brexit. From this, the Chancellor should have more than £26 billion in slack, which has risen from the £15 billion forecast last October.

“The key point, though, is that despite the huge amount of political uncertainty, the economy is holding up well,” said Capital Economics. “The news that GDP rose by 0.2% in the three months to January and by 1.2% over the past year means the UK is growing at a faster rate than Germany, France, Italy and Japan.”

European outlook

When we take a closer look at the growth figures for major EU economies, we can see a mixed picture. If we take Germany, for example, their latest figures mean it’s only narrowly avoided a manufacturing recession. Could this fall in growth help populist parties at the European Parliament elections later this year?

“One perceived risk of the elections is a further rise in populist support, but I don’t see that having a disruptive influence,” said Ken Hsia of Investec, Manager of the St. James’s Place Continental European fund. “After all, no politician will want to put themselves through what Theresa May has been through, which is why I believe further fragmentation of the EU is off the agenda for now.”

On the other hand, the EURO STOXX 50 enjoyed a strong week, as did major indices around the world. The TOPIX index in Japan and S&P 500 both saw an increase, and the Shanghai Composite rose marginally more. Across the Pacific in the US, technology stocks led the rally, surviving news of weak inflation and retail sales and the unfortunate and tragic crash of a Boeing 737 MAX 8 in Ethiopia. This caused Boeing to see its largest single-day drop on markets since 2001; despite this, it was already recovering by the end of the week.

Wealth Check

This week we’re taking a closer look at Inheritance Tax (IHT).

Although you may now be even less inclined to do so, the fact remains that gifts to a political party are exempt from this type of tax. But, for this to be valid, the party must have two elected MPs or one MP and at least 150,000 votes. Have you heard of Brexiteer businessman Arron Banks? Well, he unfortunately got this wrong, which proved costly – he lost his appeal against the £163,000 IHT bill levied on his £1 million donation to UKIP made a few years ago. The problem with this was that UKIP didn’t win a single seat at the 201 election, meaning the gift didn’t qualify for the exemption.

This isn’t the only mistake people make when it comes to estate planning. In research conducted by Canada Life earlier this year, half of over-45s admitted they were unaware that their main property could be subject to IHT, which is up a third from the previous year. On top of this, nearly two thirds didn’t know their pension savings were also liable, and 71% were unaware of the £325,000 threshold above which assets are taxed.

Therefore, there’s more than one factor to blame for estate planning problems. More research, this time published by Royal London, revealed that a quarter of people with a Will don’t discuss it for fear of upsetting their beneficiaries. Around half of UK parents with adult children said their Will was no one’s business other their own or their partner’s.

It may be a difficult subject for many, but the only way for families to overcome the challenges of estate planning is through understanding, openness and action!

You should also be aware that the levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any relief given generally depends on individual circumstances.

In The Picture

Take a look at the chart below to see who lingers the longest at the dinner table – is this what you’d expect to see?

The Last Word

“How can you govern a country that has two hundred and forty-six varieties of cheese?”

Charles de Gaulle

The information contained is correct as at the date of the article.

Invesco, Investec and Jennison are fund managers for St. James’s Place.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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