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Brexit breakthrough at last?

We look at political developments ahead of a huge weekend for Brexit.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Politicians have a habit of leaving things to the last minute, and Brexit negotiations are no exception.

But news today that the UK and EU have agreed draft terms of a new deal suggests that Boris Johnson might just have pulled this one out of the fire.

After days of intense talks, the two sides reached a compromise to remove the main sticking point and make sure a border doesn't appear on the island of Ireland after Brexit.

The next question is whether he can get the deal through Parliament in a couple of days’ time – the first Saturday sitting since the Falklands conflict. Once again the DUP find themselves holding the balance of power – and have as yet refused to back the deal.

With or without DUP votes, the PM will need to persuade both a significant number of Labour MPs and some of the 21 MPs who had the Conservative whip withdrawn last month.

Market reaction – Brexit split alive and well

The pound jumped on the news, as did the shares of companies exposed to the UK domestic economy.

If the UK achieves a smooth Brexit transition, that’s likely to be good for overall employment levels, wages and ultimately consumer spending. That bodes well for the mortgage and housing markets – which explains why housebuilders and financial firms have been particular beneficiaries.

This echoes the more extreme market moves we saw at the end of last week, when news emerged that talks between Boris Johnson and Irish Taoiseach Leo Varadkar had been unexpectedly productive.

See the latest risers and fallers

What next for markets?

Saturday in Parliament is obviously critical.

If Johnson can garner enough support for his deal, the moves we’ve seen over the past week could be accentuated, with a surge in both the pound and UK domestic stocks.

On the other hand if the deal goes the way of Theresa May’s doomed attempts to break the deadlock, the recent movements could be reversed. Of course that would open up a number of possibilities, which include (but aren’t limited to) an extension, a no-deal Brexit, or even a second referendum. All would have consequences for the markets, though as ever these are nigh-on impossible to predict.

Beyond Brexit

Whatever happens with Brexit, the parliamentary arithmetic doesn’t look good for the survival of the current government.

Commentators and markets agree an election either late this year or next year is a near certainty. The Conservatives are strong favourites to take most seats, but are odds against to win a majority – meaning some kind of minority or coalition government is a distinct possibility.

What does this mean for investors?

We usually suggest investors remain sanguine in the face of political developments.

It’s incredibly hard to predict political outcomes, and often even harder to predict the market reaction. We think it’s fair to say the market is likely to react badly to a no-deal Brexit or a Jeremy Corbyn-led government, at least in the short-term, but there are no certainties here.

The best thing for investors to do might well be nothing in our view. A well-diversified portfolio by its nature is set up to help weather a range of outcomes. If the UK market turns south, or sterling falls, hopefully your global investments will pick up the slack. Likewise if we get a favourable Brexit outcome, UK domestics could finally get a chance to shine after years in the shadows.

What we do know is that timing your buys and sells can be more than tricky – and the cost of getting it wrong increases in volatile markets. This is why we always suggest investors think twice before making snap decisions. That said, holding a small portion of cash in your portfolio isn’t a bad idea, as it could let you pick up a bargain if the market falls.

As ever we’ll be keeping a close eye on developments in Westminster, and will update you with our views as soon as we can.

This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments rise and fall in value, so you could get back less than you invest.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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