Sterling has rallied as the Supreme Court has ruled Boris Johnson’s prorogation of parliament was unlawful, although investors say the judgement will have little effect on potential Brexit outcomes and fear the economic implications of a fragmented UK beyond its exit from the European Union.
The 11 justices on the UK’s highest court were unanimous in their view and sterling rallied further as its president Lady Hale stated Johnson’s advice to the Queen to prorogue parliament had been unlawful.
The prorogation was unlawful because it “had the effect of frustrating or preventing the ability of Parliament to carry out its constitutional functions without reasonable justification,” Hale said.
Speaker of the House John Bercow is consulting with party leaders and has said parliament must convene “without delay”.
When Johnson prorogued parliament earlier this month, professional investors told Portfolio Adviser the prime minister was accelerating the UK towards a Brexit outcome. Although most said it had had little effect on their asset allocation.
Muted response from UK assets
“We retain our existing underweight to UK assets,” said Brooks Macdonald deputy CIO Edward Park, in response to the Supreme Court decision. “And where we do have exposure it is focused on large UK multinationals that have an inbuilt currency hedge against sterling volatility.”
All scenarios remain on the table but the ruling makes it more difficult for the government to restrict parliamentary Brexit oversight making a no deal on 31 October less likely, Park said.
Janus Henderson multi-asset manager Oliver Blackbourn described UK asset movements as small.
“The ruling is likely to be a historic one for the British constitution but it is unlikely to have any immediate impact on the Brexit process,” Blackbourn said. Focus will quickly switch back to the 17 October EU summit and a general election if a withdrawal agreement cannot be reached, he said.
UK risks a decade of ‘Italy-like’ politics
Willis Owen head of personal investing Adrian Lowcock said Johnson could prorogue parliament again or step down. “Both of which would add to the uncertainty.”
“Investors need to try and look through all of this, focus on the longer term and look for investments that look attractive in whatever post-Brexit world we have.”
The longer-term outlook does not necessarily look appealing to Henderson Rowe head of research Artur Baluszynski.
“With both the Tory and Labour electorate fragmented around the deal and no-deal issue, the UK is running the risk of turning into an ‘Italy-like’ disaster. This would mean a decade of hung parliaments and squabbling politicians while local budgets and infrastructure slowly decay.”
