The Brexit Update
by Thomas Quinn on Sep 11, 2020
Est. Reading time 4 min
With 112 days until the end of the Brexit transition period and 34 days until the EU summit, where the deal is supposed to be approved, the clock is certainly ticking! The end of the 8th round of negotiations have been thrown into minor chaos this week with the Internal Market Bill being announced Wednesday. The EU frustrations are clear with Michel Barnier stating a deal ‘seems unlikely’ whilst David Frost (Britain’s Chief Negotiator) sees a deal as still possible.
As with our update during lockdown, the tussle over the deal continues over fishing rights. But why is fishing waters holding everything up?
The UK wants to regain control over their prized fishing waters whilst EU member nations want to continue sharing access to each other’s seas. This has become quite the symbolic dispute as fishing accounts for 0.1% of the UK’s economy however, this was a core promise of the Brexit campaign in 2016. The EU have an equally hard line with the status quo or minor tweaks being the only option on the table.
With the pandemic shutting down economies, priorities changed and travel was not possible. The easiest solution would be to extend both parties, who equally want a deal, additional time to agree. However, Boris has been clear that no extension to the transition deal will happen, it was December 31st or a no deal.
Up steps the Internal Market Bill, the 53-page document announced on 9th September intended to override parts of the withdrawal agreement. This throws into question the Northern Ireland Protocol, which sets out how Northern Ireland and the Republican of Ireland (the EU) will trade without the need for a hard border. Former Prime Ministers May and Major have explicitly condemned this as a violation of international law. Also, Nancy Pelosi, has spoken out on any US-UK trade deal not being passed through congress if the UK violated such laws.
The bill has sparked the EU to ‘step up plans for a no-deal Brexit’ whilst following up by stating Britain had not engaged in a reciprocal way on fundamental EU principles and interests. The UK fervently disagree and will plow on with the Internal Market Bill stating its parliament is sovereign above international law .
This all may be rendered a moot point if a deal is agreed however, it confirms to the EU to be prepared for a messy divorce with a no-deal Brexit.
How about a no deal, after all that’s what 52% of the voters voted for?
When you look back at the rhetoric of the Brexit Campaign in 2016, a number of the main leaders including Gove, Johnson and Hancock, didn’t have an appetite for a ‘no deal’ and reassured voters that there would be a deal. With Gove stating ‘We didn’t vote to leave without a deal. That wasn’t the message of the campaign I helped lead’.
The current dialogue is sounding rather familiar to 12 months ago where the UK and the EU were tussling over the transition agreement. With the clock counting down and a deal looking unlikely, in October the announcement came, to the surprise of many, the UK and the EU agreed the 12 month transition agreement and pen was put to paper.
With the 9th round of negotiations looming, an eleventh-hour deal is still the goal however, both sides are upping the rhetoric and moving forward on no-deal plans.
For those exposed to Sterling you may have noticed the recent volatility with the exchange rate. For those not exposed, you could look today and you see a familiar story of GBP at $1.28.
The USD has weakened recently, driven by the ‘Pandemic Print’ of the Dollar and the election cycle unknowns driving the relative strength of GBP as it rose to $1.35. The Dollar has weakened against all major developed currencies in this Covid time and with no immediate end in sight for a mass vaccination, the Federal Reserve is willing to print our way out of this recession to avoid a 1929 depression. With 53 days until the election and the US on a slow downward trend in new daily cases this may lead the dollar weaker still. This is positive for GBP holders.
However, if the UK and the EU do not agree a deal then $1 trillion worth of trade goes into a state of confusion in 2021 and Sterling will take another deep tumble as the future position of the UK on the world stage is thrown into question.
With the UK and the EU already aligned on so many ethical, social and fiscal practices for their citizens and businesses, as well as the proximity to the EU and past trading relationship, a deal between the UK and the EU seems inevitable at some point. After all, why go 3 blocks down the road to ask your neighbour for toilet roll in lockdown when you could go next door!?
What remains to be figured out is when and how the agreement will look for both parties, and until that moment GBP may continue a path of volatility.
Who blinks first?
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