Today, after 9 months of waiting, the Brexit referendum has finally given birth to Article 50. In a sign of the times, the President of the European Council Donald Tusk notified the world of his receipt of the official letter via twitter a few minutes before 12:30 GMT. Prime Minister Theresa May then addressed the House of Commons calling the occasion a ‘great turning points in Britain’s history’; meanwhile Tusk opened his address stating ‘There is no reason to pretend this is a happy day, neither in Brussels nor in London,’ and concluded with ‘we already miss you’. The letter and accompanying speech remained clear in pursuing a hard Brexit, stating ‘Because European Leaders have said many times that we cannot ‘cherry pick’ and remain members of the Single Market without accepting the four freedoms that are indivisible. We respect that position. And as accepting those freedoms is incompatible with the democratically expressed will of the British People, we will no longer be members of the Single Market.’
It took Theresa May’s government 9 months to put together the foundations for this 6-page letter of withdrawal; they now have less than three times this to achieve a vast plethora of negotiations both with the EU-27 and domestically – including all four constituent nations of the United Kingdom from whom there is already clear discontent. In the coming weeks the UK will invoke its ‘Great Repeal Bill’ while the EU-27 adopts the Article 50 guidelines for dismemberment. From there expect negotiations to be slow with earlier points on the agenda focused on securing the wellbeing of remaining members and that of EU citizens in the UK and vice-versa. Items that deal with the wellbeing of the UK as a whole may have to take somewhat of a backseat for a while.
Anecdotally the pen used to sign the agreement was a Parker Duofold: from a US company that used to manufacture in the UK but moved production to France in 2011. One hopes this is not a portent of Brexit causing other UK businesses to go the same way. The only real unambiguous consequence of today is that it is indeed a “historic moment from which there can be no turning back”. In two years we will begin to see whether this new uphill struggle leads the UK to the new heights of “A Truly Global Britain” or straight off a precipice. For now the slow predictable movement of the UK government has allowed the markets to remain relatively stable with sterling little changed on the day and 10 year Gilt yields actually continuing to tighten below 1.16%. Given such uncertainty paired with low yields there are only a handful of UK issues that we perceive offer some relative value. Our investment process is still able to target yields in excess of 4% whilst maintaining an average A2 rating.