How tonight's Brexit vote could move markets

How tonight's Brexit vote could move markets

If tonight's (March 13) crunch vote fails to rule out a no-deal Brexit gilt yields and the value of the pound could take a further hit, according to investment experts.  

David Zahn, head of European fixed income at Franklin Templeton, said markets will await the results of today's (March 13) vote with more focus than last night's, as a vote for keeping a no-deal Brexit on the table will significantly increase the odds of the UK crashing out of the European Union in two week's time.

He said: "We believe this scenario would impact markets with gilt yields and the pound both declining, while a vote to take a no-deal Brexit off the table will prolong the uncertainty for markets, leaving them relatively unchanged.

"However, a vote against having a no-deal Brexit does not rule it out as an accidental no-deal Brexit is still a possibility."

But Stephanie Kelly, senior political economist of Aberdeen Standard Investments, said she strongly expects that parliament will tonight reject a no-deal Brexit by a large majority setting the stage for approval of an extension of Article 50 by the end of the week.

Ms Kelly said: "Sterling should perform well in this scenario as the technical risk of no deal subsides.

"The interesting question is how long the extension is and what, if any, conditionality the EU attaches since it requires unanimous approval in Brussels. This will condition the market response."

She added: "Further sterling volatility is likely during the extension period as UK politics faces potentially significant realignment in that extension period and the potential for another trip to the polls for voters.

"In particular, a general election would pose a challenge to investors: while a Labour government would likely pursue a softer Brexit, the nationalisation policy agenda worries many investors."

Chris Cummings, chief executive of the Investment Association, said it was critical that every effort is made to avoid a no-deal exit from the EU as this was by far the least desirable outcome for the millions of people who entrust their savings with the financial services industry.

He said: "Since the Brexit referendum, British savers have taken nearly £19bn out of UK equity funds, which reflects broader concerns about the strength of the UK economy. A no-deal Brexit will only serve to further dent investors’ confidence in the UK economy, and every effort must be made to avoid it."

Mark Brownridge, director general of the Enterprise Investment Scheme Association, said the current state of Brexit uncertainty – with little more than two weeks to go until the UK is supposed to leave the European Union – was "madness."

Mr Brownridge said: "Uncertainty breeds fear and that's what we will see more of with the agreement not passing the commons.

"How can any business plan with the political backdrop we are currently experiencing? We will now almost certainly see a slow-down in the economy that could have been easily avoided.