What is next for Article 50?

  • It is now our base case that the UK will exit the EU in Spring 2019, exiting both the single market and the customs union as part of its ‘divorce’. The UK is seeking a deep and comprehensive free trade agreement to cover both good and services. It is unlikely that such an intense free trade agreement can be written by Spring 2019, so a transitional relationship is likely to be agreed first and then a framework for developing the final agreement.

  • With respect to financial services, ‘passporting’ is not likely to be viable given the UK will not be part of the EEA/EFTA, and thus a reliance upon ‘regulatory equivalency’ (as used by US institutions within the EU) is likely instead.  

  • Recent actions within the House of Lords suggest that there will Parliamentary votes on any new relationship before the UK exits the EU in Spring 2019. We also expect a second referendum on Scottish independence in Autumn 2018, and a potential border poll in Northern Ireland.  

  • Standish feels that GBP is currently fairly valued given the known information, but will continue to remain extremely volatile and driven by political headlines as we move through the negotiations. Gilts will remain vulnerable to Sterling movements, as well as the expected spike in inflation. European assets are more likely to be driven by events related to the French election than Brexit per se.

The comments provided herein are a general market overview and do not constitute investment advice, are not predictive of any future market performance, are not provided as a sales or advertising communication, and do not represent an offer to sell or a solicitation of an offer to buy any security.  Similarly, this information is not intended to provide specific advice, recommendations or projected returns of any particular product of Standish Mellon Asset Management Company LLC (Standish).  These views are current as of the date of this communication and are subject to rapid change as economic and market conditions dictate. Though these views may be informed by information from publicly available sources that we believe to be accurate, we can make no representation as to the accuracy of such sources nor the completeness of such information.  Please contact Standish for current information about our views of the economy and the markets.  Portfolio composition is subject to change, and past performance is no indication of future performance.
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