Head - EMEA Investment Strategy
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The EU and UK are trying to reach a deal over their future trading relationship. This has important implications for UK growth and asset prices.
Having left the European Union on 31st January 2020, the UK is next due to leave its one-year transition period on 31st December 2020. During the transition, the UK’s trading relationship, financial contributions, and legal obligations are the same as they were during its formal membership. With just over six months to go – and with the attention of both sides having focused on the COVID-19 pandemic over recent months – there is a rising risk that the UK will finish the transition without achieving the period’s principal objective of striking an EU trade deal. Brexit is thus likely to be back in the spotlight in the coming weeks.
Four rounds of recent trade discussions have not gone well. The current impasse can only be resolved if both sides relax their “red lines.” UK Prime Minister Johnson must decide by the end of this month whether to ask the EU for an extension of the transition period. While the EU has indicated its preference for an extension, our base case is that Johnson will not ask for one. Instead, we believe he will push for a deal to be struck by October, the latest time by which an agreement can be reached and then ratified by both sides before the end of this year. While both sides would prefer even a limited trade agreement, both sides are also preparing for “no deal.” In this report, we analyse both sides’ trade priorities and concerns, and the economic and market implications of a limited deal versus “no deal.”
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