The final Brexit chapter?

Philip Shaw, Victoria Clarke and George Brown
Investec Economists


Given the sizable majority and the implicit mandate the election has provided for Mr Johnson’s Brexit deal, its ratification next month seems a near certainty and therefore the UK is set to leave the European Union on 31 January. The UK will then enter a transition period, which will last at least until the end of 2020, and begin negotiations with Brussels over the future trading relationship.


We judge it would require a herculean effort for the two sides to agree a free trade deal given the tight timeframe. Consequently we expect that the Prime Minister will be forced into seeking a one-year extension to the transition period.


Though the details of any future trading arrangement remain vague, we also cannot completely rule out the possibility that Mr Johnson, unhappy with the trade offer on the table from the EU, eventually rejects an agreement altogether and pursues a Brexit on WTO terms after the transition period ends. As such we are firmly of the view that some Brexit uncertainty will persist throughout 2020.


With Brexit still a major undertaking, Mr Johnson’s policy agenda is still likely to be restrained. However, the solid majority increases his prospects for passing any legislative changes. We would therefore be surprised if Mr Johnson does not use this opportunity to try and shift the policy platform further in line with his political objectives, beyond what is detailed in the manifesto.


Some new pledges may be tackled at the upcoming Budget, which looks set to take place in late February. Key pledges on the tax front, already known, include a promise to raise the threshold of employees’ National Insurance Contributions to £9,500 next year alongside a pledge to cut the burden of taxation on business. A first step listed here is a pledge to further reduce business rates for retail businesses.


Note also that, though not highlighted in the manifesto, the corporation tax rate will now remain at 19%, rather than fall to 17% next year."

Sterling buoyant, but still work to do

Jonathan Pryor

Head of FX Sales, Investec


It was a surprisingly comprehensive victory, so we have a pretty buoyant sterling today. As we take it in, it feels like markets are trying to do the same. Sterling has been very volatile, as has the FTSE.


The sentiment from our trading desk is that the majority of the good news is out there now, so we’ve seen sterling already come off the highs of the day as investors shift their focus to the next Brexit phase. After the pound rose to $1.35, a quite significant relief rally, it has retreated down to the high $1.33s.


Judging by the conversations we’ve had on the phone this morning, clients are trying to gauge market sentiment and the landscape of risk to understand what’s going to hold sterling back, and what, if anything, may drag it lower. When you start to think about the transition period and the risks associated with that, and potential Bank of England rate cuts, we certainly feel that we’re not out of the woods yet.


So the election result certainly feels like it is immediate good news for the economy, business and sterling. But there’s much work to do and on the horizon is the Brexit transition period, which I’m sure the media and the markets will turn their focus toward quite quickly in the New Year.

Markets surge after Tories secure majority

John Wyn-Evans
Head of Investment Strategy, Investec Wealth & Investment


In years gone by, such a result might have been greeted with the sound of champagne corks popping in the City of London, but this time relief rather than rejoicing might be the order of the day. Yes, the worst-case scenario of an aggressively socialist government has been avoided, but there is still much uncertainty about the financial sector’s future trading relationship with Europe.


Now the Prime Minister must not only focus on how Brexit is to be delivered but also on restoring growth to an economy that has been hamstrung by three-and-a-half years of uncertainty. 


We continue to judge the current Withdrawal Agreement as representing a very “hard” form of Brexit in which our trading relationship with the EU will be much less smooth than before. It will also not cover our strong service industries. Furthermore, we are unsure of the government’s ability to secure sufficiently attractive trade deals with other, more distant, countries to make up for any shortfall.

Businesses can start planning again

James Arnold
Chief Client Officer, Investec Corporate Banking


The election’s decisive outcome will mean UK businesses can finally hope for greater clarity after years of Brexit uncertainty and four major national votes since 2015. The results pave the way for a smoother exit from the European Union and allow business to make concrete growth plans. Hopefully, companies can now get back to business, and we’re excited to help them.


In areas other than Brexit, companies can also look forward to the Conservatives’ pledge to cut the tax burden on companies by reducing business rates with a fundamental review of the system. Retailers, grassroots music venues, small cinemas and pubs will be the first to benefit.


In terms of smaller enterprises, the Conservatives have said they will increase the employment allowance for such companies, cutting National Insurance for more than half a million firms. The Conservatives have also promised to focus on regulation and legislation that helps small and medium-sized businesses, something that will help many of our entrepreneurial clients.

‘Businesses will welcome a pro-enterprise vision. However, many will be cautious about what next year will bring.’

And while Boris Johnson has scrapped plans to cut corporation tax from 19% to 17% next year, it’s still lower than the European average. 


Businesses will welcome this more pro-enterprise vision. However, many will be cautious about what next year will bring. The Conservatives want to complete Brexit by the 31 January deadline under Boris Johnson’s deal. While this will bring the first phase of Brexit to an end, attention will soon turn to the details of the UK-EU future trade relationship that has yet to be negotiated.


From Brexit to specific business policies, there will be many issues keeping our clients busy in 2020, and we are excited to be by their side to help them.

Read more from Investec on the UK General Election 2019

Surge of optimism for companies considering an IPO

Jonathan Arrowsmith
Head of Advisory, Investec Corporate & Investment Banking


After uncertainty caused the flow of companies onto the London Stock Exchange slow to a trickle this year, there has been a surge of optimism today as investors and businesses hope this election will turn the tide. Firms have been turned off from making big decisions due to the UK’s recent political mire. But following this election, there are plenty of reasons to feel confident about a UK initial public offering.


Companies should also be encouraged by reports that regulators are considering relaxing rules governing IPO eligibility in the UK. Such changes were recommended by Downing Street’s financial services business council, a body set up under Theresa May, and the current government seems keen to take this forward to attract more high growth companies such as tech start-ups. The fact that the UK is taking a proactive approach to boosting the attractiveness of our public markets, following Brexit, bodes well for companies considering a UK IPO next year.


And following a quiet 2019, there may be some pent up demand and a long queue of companies waiting to list.

Reassurance that the property market needed

Peter Izard
Business Development Manager, Investec Private Bank


On this occasion, the pollsters were correct. The pre-election predictions of a Conservative majority were reflected by activity at the polling stations and Boris Johnson’s party has won a convincing majority. Now we know the make-up of the next parliament, we can all make plans with greater certainty, so what can we expect in 2020?


The first thing on the list is clearly Brexit and with an outright majority, it looks like the UK will be leaving the EU with a deal ahead of 31 January, given that the Tories have indicated their plans to fast track the Queen’s speech and ram Brexit through within weeks. This will be followed by a transition period until at least the end of the year and an option to extend it to 2022.


The withdrawal deal agreed between Johnson and the EU puts Northern Ireland in a hybrid customs system and features a future Canada-style free trade agreement. That future arrangement points to a harder Brexit than that proposed by Theresa May, and this could mean a more significant impact on the economy, but much will depend on the final details.

‘Set against the manifestos from other parties, the situation is certainly more palatable than it might have been.’

Still, the public spending increases that Johnson has proposed should partly offset this and there is likely to be a degree of immediate optimism that we are at least some way down the path towards greater certainty.


Other key elements of the Conservative manifesto included plans to introduce a Stamp Duty surcharge on property bought by non-UK tax residents, which would apply to companies and individuals. This may not seem like significantly positive news for the mortgage industry and broker businesses, but set against the manifestos from other parties, the situation is certainly more palatable than it might have been.


The devil is in the detail of course, and the first Budget of the new government in the New Year will shed more light on what we can expect. But, for now, there is at least some certainty, and this will be reassuring for many as we head into the Christmas period.

UK can reconfirm its status as a global real estate market

Will Scoular
Co-head of origination, Investec Real estate finance


Real estate decision-makers have long craved greater political certainty, and that is the headline they have woken up to. It will not be eliminated as questions over the UK’s permanent trading relationship persist, but the removal of some of the Brexit fog should help lift business investment, UK growth and with it housing activity. 


This clearer direction for UK politics will empower corporates to dust off expansion plans, developers to commence new schemes and investors at home and abroad to quickly buy into what now looks like a very attractively priced real estate market.


We expect 2020 will therefore be a much more active year on all fronts, as the UK reconfirms its status as one of the world’s few truly global real estate markets.