SIMC20: Brexit – Is the end now in sight? What are the prospects for the UK and Europe?

The impact of Brexit has been put into a different context as a result of the dramatic economic effects of the Covid-19 crisis, the audience at Schroders’ Digital International Media Conference 2020 were told.

Despite the disruption caused by the pandemic, the UK government will now allow for more time to complete the trade negotiations before the Brexit transition period comes to an end in less than six weeks.

While talks have intensified over the summer, the negotiations do not appear to have made any progress, leaving many increasingly concerned that a trade deal may not be agreed in time.

Schroders’ Senior European Economist & Strategist Azad Zangana commented on the probability of a post-Brexit UK-EU trade deal:

“The UK continues to demand the right to diverge on standards, while the EU wants the UK to agree to maintaining a ’level playing field‘, or in other words, not to undercut the EU on labour laws, environmental standards and corporate subsidies. The dispute extends to fisheries, as the EU is pushing for access to UK fishing waters, which the UK refuses to accept.

“The UK has raised the stakes by legislating for the new rules to enable state aid in Northern Ireland, which would override key parts of the EU Withdrawal Agreement. The move caused a crisis in the talks as this was deemed by the EU as not only an infringement of international law but also one that would put peace in Northern Ireland at risk.

“The UK has also threatened to restrict the access of EU companies to the City of London for the purpose of raising capital, highlighting the important role that London based financial firms play in the development of EU based companies.

“The EU has so far not responded beyond highlighting the UK government’s behaviour. Instead, it has focused on finding solutions to the impasse, keeping up the momentum in talks.

“Talks have intensified with both sides working towards a conclusion in the next week or two. However, negotiations have already spilled over beyond the initial deadline of the end of October. This raises a ratification risk. Unlike the Withdrawal Agreement, the trade deal requires unanimous backing from all EU member states, and so may face last minute obstacles.

“A lack of a trade deal would be disruptive for both sides, but would be a drop in the ocean compared with the impact from the Covid-19 lockdowns. It will be incredibly difficult to separate and distinguish the impact of each shock. Therefore, the incentives for the government to ensure a deal is in place is reduced.

“As there is good economic reasons behind a deal, and public support for one, there should be an acceptable solution to the impasse for both sides. We remain confident that both sides want to strike a deal.”