Close, but no Brexit

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By Leighton Hughes.

The debate continues to rage around Britain’s referendum on the European Union, as it should for such an important decision. It is my firm belief that Brexit will not happen –  athough it will be fairly close run. As we enter the final phase, there are some fundamentals that must be considered as to the reason for this. They revolve around there being no modern precedent for a successful anti-establishment cause, the weak economic case put forward for leaving the European Union, as well as the typical last-moment swing from voters who are undecided to a position backing the status quo.

Firstly, in spite of the current close margin (with a 47-45 split shown on the Financial Times’ aggregated poll of polls), there is little modern precedent for an anti-politics, anti-establishment cause winning the final outcome it desires. For example, while the Scottish National Party has effectively made Scotland a “one party state”, there was a decisive statement from the Scottish people that they were to stay in the United Kingdom. Another example is when far-right candidate Marine le Pen got locked out of winning the department elections in France last year as a result of a pact between the two dominant parties. Even in the recent case of Austria (though it was the most precarious), the far-right candidate, Norbert Hofer, did not win this year’s election. Beppe Grillo’s anti-politics Five Star Movement also failed to win the Italian presidency. As well as this, the anti-establishment Labour leader Jeremy Corbyn, though remarkable in his rise, is predicted by few psephologists and no betting companies to win the 2020 General Election. While each of these cases is different in its guise, it is clear that anti-status quo parties, leaders, and causes have not fully realized their entire promise. The examples are many, and there is no reason to believe that a Brexit will happen on this basis.

In terms of this particular set of campaigns, it is my clear view that the Leave campaign have not done enough to prevent a late swing of ‘undecideds’ to remain. They have presented a very poor economic case for leaving. Much of the membership fee saving will be offset against paying for a smaller economy. This has not been addressed by the Leave campaign. Sovereignty and enhanced democracy are wonderful things; however, though meat and drink for fully fledged Leave supporters, it is a subject that does not get Britain’s modern Mondeo Man/Worcester Woman hot under the collar. Instead, there will be a rational consideration on the day of whether it will affect people’s jobs, education, wages in the immediate term. If there is any doubt that a Brexit could affect these key aspects of people’s lives, there will be limited appetite for such a highly uncertain change. World-leading bond investor, Jeffrey Gundlach has succinctly said: “People like to complain, they like to say what’s wrong but then when it comes down to actually pulling the lever they sit there and they say, ‘what exactly am I doing here, what is going to happen?’ The devil you know is better than the devil you don’t know.” This is exactly what has stopped anti-politics causes reaching their ultimate goal.

The fundamental reality that will kick in, as John Vail of Nikko Asset Management says, is that “people will vote on their wallet.” Is there an economic benefit? In the short-term there will be a cost. In the longer-run, it might be positive. But might. And highly uncertain in any case. Have people the time or the inclination to wait and see? It is all hugely uncertain.

Whatever side of the fence you sit on, it is my view that there is a likely chance that it will be close, but that there is no reason to believe that we will see a vote to leave the European Union. There is no clear economic case. This will be the dictating factor. The likelihood of a Brexit has been overstated tremendously. There is no precedent for a complete anti-politics success story. It has been an interesting few months of Euro-mania, but in the words of Dutch Prime Minister Mark Rutte, “I have seen polls that are all counting on the result that they will leave, but I count on the collective wisdom of the Brits – and I’ve so far never been disappointed.”

Leighton Hughes