We know only two things now. First, Brexit most certainly does not mean Brexit. Second, Brexit uncertainty has been inflated to such an extent that the risk of crisis now haunts Westminster, and, by implication, the economy and financial markets. Perhaps, while not wishing it, you could argue that everyone needs a crisis: Theresa May to get her deal through parliament, Brexiteers to raise the chances of a no deal, and Remainers to see the whole thing cancelled. The one place which needs a crisis like a hole in the head is the economy.
The likelihood of May’s deal, running to over 580 pages, being approved by parliament appears to hang by a thread. While May’s fortitude and defiant stance stand in her favour, and it is the only deal on the table, the parliamentary maths is nonetheless stacked against her, and her own position as leader of the Conservative Party is at risk.
We voters gaze at our real-time political thriller in bewilderment, speculating about the likelihood of May’s survival, the fate of the Withdrawal Bill, and the prospects of a second referendum and a general election. But there are no cosy armchairs from which to watch as heightened levels of uncertainty flow through the veins of businesses and the economy.
And the economy is already struggling. According to the latest CBI Industrial Trends survey, business confidence has fallen faster than at any time since the referendum, investment intentions have slumped, and order books have thinned out. The annual change in new car sales fell in October for the seventh consecutive month. House price increases, on average in the UK, have followed a similar pattern. The service industry Purchasing Managers’ Index dropped again in October to the lowest level in seven months.
Companies are becoming more cautious or are already spooked. Royal Bank of Scotland, for example, recently set aside an additional £100m to guard against the risk of loan losses. It won’t be the only financial firm looking to the future with greater angst.
The market in credit default swaps offers a way for investors to hedge against the risk of loss arising from a deterioration in credit quality. By the end of last week, the cost of insuring…