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What's next for Brexit after May survives vote?

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The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Christopher M. Dyer, CFA, Director of Global Equity, Portfolio Manager, Eaton Vance Advisers International Ltd.

      London - British Prime Minister Theresa May survived a confidence vote Wednesday as the U.K. moves closer to leaving the European Union (EU). Still, the exact path to Brexit is uncertain and remains a top worry for global investors.

      After winning the confidence vote 200-117, Conservative Party leader May cannot be challenged again for at least a year. Yet, it's unclear whether a Brexit deal would ultimately be approved by Parliament, and what it might look like.

      Indeed, for the past two years we have maintained a negative view on companies with exposure to the U.K. domestic market. Wednesday's vote does nothing to change that view since questions regarding Brexit continue to weigh on investment and sentiment in the U.K.

      Blog Image Sterling Chart Dec 13

      Looking ahead, the outcome of the Brexit process remains difficult to predict. A "hard" Brexit or even no Brexit are within the realm of possibility. We believe a negotiated Brexit remains the most likely scenario in the wake of May's victory this week.

      Looking at the potential market impact of each scenario, in the event of a hard Brexit (i.e., no deal with the EU), in currency markets we believe sterling would weaken further, and U.K. the economy would suffer for an extended period of time.

      In the event of a negotiated Brexit, the impact on the economy is still likely to be negative, but in our view would depend on the exact terms of the trade deal still to be negotiated.

      Stepping back even further, we believe trade negotiations between the U.S. and China are a bigger driver for the global equity markets at present.

      Bottom line: Theresa May surviving the confidence vote this week takes the U.K. a step closer to Brexit, although exactly how the deal would ultimately look remains uncertain.