Brexit back in the news

by: , Portfolio Strategist, MainStay Investments

While it has taken a back seat to the U.S./North Korean Summit, concerns over a global trade war and a potential eurozone crisis stemming from recent elections in Italy, Brexit will again garner its fair share of headlines in the coming days.

The next phase of the ongoing Brexit saga will occur on June 12. On that day, the House of Commons will consider a number of proposed amendments to Brexit legislation. These include several core issues, not the least of which is whether the UK should leave the European Union’s (EU) customs union.

The pros and cons of the customs union

The customs union is an agreement that allows participating countries to set common external tariffs, so goods can freely travel between those countries without cost or delay. The customs union was created in 1958 and, today, all members of the EU are participants. Goods that travel from outside the customs agreement are typically subject to additional levies and regulations that cost both time and money. If the UK leaves the custom union, it can still trade with EU countries, but it would face tariffs (and vice-versa), which could push the cost of goods and services higher. The UK would also have to negotiate new trading deals with the EU, which all members would have to agree to.

Political ramifications

The vote to remain in the customs union is important to Prime Minister Theresa May, but it is currently too close to call. If the vote is to leave, it would likely change the dynamic in the UK’s negotiations with the EU. However, many on the pro-Brexit side of the Conservative party would negatively react to such a policy shift. And, the likelihood of them requesting a vote of confidence vote among Conservative Members of Parliament in May’s political leadership would, in our view, would be high.

The stakes are high

As we move closer to Tuesday’s vote, there is a state of flux, as both the May administration and Labour opposition party attempt to develop an approach to Brexit within their political constraints. Events are likely to move quickly, so stay tuned for further Brexit-relate updates and their potential impact on the global financial markets.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. New York Life Investments does not guarantee their accuracy or completeness, nor does New York Life Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

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Customs Union – a group of countries that have agreed to charge the same import duties as each other and usually to allow free trade between themselves.

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Robert Serenbetz

Portfolio Strategist, MainStay Investments

Robert Serenbetz is the Portfolio Strategist for the Strategic Asset Allocation & Solutions Group (SAS). He contributes to investment thought leadership and communication efforts across New York Life Investment Management

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