A thin and last-minute Brexit deal should give temporary relief to UK assets

Amundi
By January 11, 2021 10:13

A thin and last-minute Brexit deal should give temporary relief to UK assets

As widely expected, the core of the deal is a zero-tariff/zero-quota free trade agreement for goods. This means that EU-UK trade will be much less affected than if the UK had ‘crashed out’ without a deal, to be governed solely by the WTO regime. However, trade will not be as fluid as it was before: new non-tariff barriers have appeared in the form of customs checks and compliance procedures as the United Kingdom has left the EU customs union and single market. Some of these new procedures will be phased in gradually. Another important aspect of the deal is that each side will have the chance to protect its market if it finds itself undercut by looser regulation on the other side (this was a difficult part of the ‘level-playing field’ issue, which was only resolved at the very end of the negotiations). Regarding the Irish border, the United Kingdom has confirmed that it will implement the 2019 agreement whereby customs checks will be across the Irish Sea. However, the deal is much lighter when it comes to trade in services, even though there is room for amendments at a later date. Airlines and hauliers will continue to operate across the Channel but, in most services sectors, providers will need to seek approval on a case-by-case basis with national authorities. Importantly for financial services – which have been negotiated separately from the main trade deal – UK providers have lost their passporting rights in the EU. The EU has granted temporary ‘equivalence’ only for a very limited number of financial activities (for example, for derivatives clearing houses for 18 months). However, negotiations in this field will continue. All in all, this new trade regime eliminates the risk of a major trade shock at the beginning of 2021, but is nonetheless underwhelming when considering in mid-2019 there was still some hope of retaining a much closer relationship, for instance, with the United Kingdom retaining its access to the EU single market and/or remaining in the EU customs union.

Amundi
By January 11, 2021 10:13

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