Monday 07 November 2016 by Opinion

No Brexit – A growing possibility

Last week’s UK High Court ruling makes a ‘soft’ Brexit more likely, but could a ‘no Brexit’ outcome become reality?


After the UK government lost its High Court case to unilaterally take the UK out of Europe without a vote in parliament, I believe the most probable outcome will be an early general election during 2017. That is despite current protestations of UK Prime Minister Theresa May, who is continuing to hold the stance that Brexit means Brexit.

For now the case is elevated to the UK’s Supreme Court, where it is likely to be heard by the full bench of eleven Supreme Court judges between 5 and 8 December.  While there is no guarantee that the UK government would lose the case (again), there is certainly a strong likelihood that it would.

If the Supreme Court upholds the High Court’s ruling, then the Conservative government would be forced to pass an Act through both the House of Commons and the House of Lords. Given the tendencies to both Houses to lean toward the ‘remain’ camp, then it is not clear to me how any act to leave the EU would successfully pass.

As such, one option for PM May would be to obtain a second mandate from the UK public via a general election, and/or a second legally binding referendum. The option for a general election will be more appealing to the Tories with a virtually unelectable opposition Labour party led by Jeremy Corbyn.

After my recent visit to the UK, it was obvious that many thought that the UK would remain in the EU and cast a vote to ‘leave’ as a ‘protest’ vote, only to wake on Friday morning with huge regrets.  If the same question was asked again, I am convinced that ‘remain’ would win.

With political uncertainty and the Bank of England (BoE) revising its inflation targets upwards, essentially saying that rate cuts were off the table for the rest of the year, I believe that the sterling could see some support at current levels.

If bond investors share this view, we can offer the following sterling denominated bonds:

Company Maturity/call date Bond type Yield to maturity/worst* (pa) Income/running yield (pa)
Aviva plc 21/11/2019 fixed 3.46% 6.26%
BHP Billiton 22/10/2022 fixed 3.95% 5.74%
Old Mutual plc 24/03/2020 fixed 3.05% 5.99%
Tesco plc 13/01/2033 fixed 4.71%

Source: FIIG Securities
Note: Prices accurate as at 7 November 2016 but subject to change
All bonds listed are available to wholesale clients only

*The yield to worst (YTW) is the lowest yield an investor can expect when investing in a callable bond.