Going, going, gone: Brexit looms large for the UK and the EU.
One of the most momentous occasions in British history finally happened, four years after the UK voted to leave the European Union (EU).
In what became known as the Brexit fiasco that lasted far longer than it should, caused by indecisiveness at the very highest levels of politics, both British and foreign citizens grew uneasy as the Brexit countdown wound down to the point of no return. Uncertainty was rife and both individuals and companies were on the verge of panic related to potential currency exchange rate fluctuations, property prices, import/export controls, as a result of a no-deal Brexit scenario.
However, despite the late theatrics and a growing probability of a complete turnaround towards the UK cancelling its plans and opting to remain, the UK stopped being a member of the European Union (EU) at precisely 11 pm on 31 January 2020. The entire process required no less than three prime ministers, two general elections and an abundance of patience on all sides of the Brexit divide.
|Key Dates in 2020||Significance|
|25 February||European and UK officials are expected to agree to a definitive schedule for the rest of 2020, including an official negotiation kick-off date of March 1st 2020.|
|1 March||The UK and the EU will commence negotiations with a view of agreeing a mutually beneficial trade deal that covers all areas of the economy including quota-free, tariff-free trade and freedom of travel.|
|June||Key summit in the middle of the year is expected to take place involving both EU and UK officials.|
|1 July||Both sides will seek a deal on mutual access to UK fishing waters for European fishermen and financial services harmonisation.|
|26 November||Closing date for final trade deal terms to be agreed and ratified.|
|31 December||If a trade deal is not agreed and ratified by this date, the UK will revert to basic WTO terms.|
|Post-2020||Future relationship talks are expected to continue after 2020 given the wide range and complexity of industries that are intertwined between the UK and EU.|
In a nationwide referendum in June 2016, 17.4 million people, around 52% of all voters, chose to exit Europe while 48% wanted to remain. In the four years since, both British and European politicians have squabbled over the precise terms of the UK’s exit which has led to far-reaching impacts on all walks of life.
Most importantly, given that the fine details of the Brexit agreement were not finalised, individuals and businesses were left with rapidly changing expectations of future events, thereby compounding the risk factors surrounding the event.
Most focus has been on financial markets but other areas such as property, retail, travel and effects on small businesses particularly in the import/export space, have all been affected by the impending exit.
For companies involved in international trade, the obvious concern was the ability to deliver goods to their customers, but equally, the Brexit effect on currency rates — specifically the Euro, British pound rate. With foreign exchange rate volatility heightened before Brexit, speculators have now relinquished their grip on market expectations and market speculators now foresee an orderly Brexit process going through to year-end.
However, the speculation surrounding Brexit did impact international money transfers because of the impact on underlying currency rates and their expectations. Although Brexit is now scheduled to occur at the end of the year, currency risk remains a factor that could play a significant role in shaping the economic landscape between the UK and the EU, and it impacts private clients as well as corporate FX clients.
As things stand, Britain has officially left the EU, embarking on a new course towards self-determination and sovereignty; but for the time being, little has changed.
The UK remains inside the EU’s single market and customs union while trade terms and free movement of people remain in place as they were. The current status quo is temporary because, at the end of the post-Brexit transition period on December 31, 2020, there will be a cliff edge, of sorts. The UK must agree some form of a deal by the end of the year or trade terms will revert to WTO rules in 2021.
Exactly how steep the cliff is and how the UK will traverse the precipice will depend on negotiations regarding a future relationship with talks already going ahead.
According to the Financial Times, the EU is aiming to have its negotiating mandate agreed for March 1. European policymakers are expecting to have this date confirmed by February 25 which would give the European Commission the legal authorisation to open talks with the UK.
Both sides’ priority in the talks will be to agree on a free trade agreement that sits at the core of a new economic relationship. European and UK officials have repeatedly expressed a desire for quota-free, tariff-free trade in goods while travel should remain free-flowing, especially for short-term tourists.
EU and UK officials are expected to call a summit sometime in June because UK Prime Minister Boris Johnson’s Brexit deal stipulates a provisioned time to assess the progress of the talks.
June is also the final month for Britain to request an extension of its transition period beyond 2020, something UK’s prime minister has pledged not to do. A change of heart now could derail the Brexit process altogether, or, change the semantics of the process significantly.
According to the Brexit agreement and the agreed timeline, the EU will attempt to seek a deal on mutual access to UK fishing waters for European fishermen. Fisheries is of crucial importance to eight coastal states, among them France, Spain and Portugal – all of whom have voiced fears that unless a fully-fledged trade agreement is made, broader talks will grind to a halt.
The two sides are also committed to reaching a decision on mutual access to financial services markets by this date. European policymakers view finance as another source of leverage in the upcoming talks, given the importance of the City of London to the UK economy.
November 26 2020
EU officials have stipulated that a trade deal must be negotiated, checked, translated and presented to the European Parliament by this week if it is to be ratified by the end of the year.
MEPs will be in Strasbourg in the final week of November for their penultimate plenary session of 2020 with a final session expected to be held in mid-December. According to most market commentators, failure to ratify by the end of November will mean it is too late to sign off on any deal with the UK by the end of 2020.
Both EU and UK negotiators have admitted that given the truncated timeline, the two sides effectively have around 6-8 months to flesh out a trade deal.
December 31 2020
The actual cliff edge is set for the last day of 2020.
If a trade deal is not agreed and ratified by this date, the UK will revert to basic World Trade Organization (WTO) terms, meaning a variety of tariffs on goods and little practical co-operation to smooth border checks.
Failure to agree on a deal also means that the UK will effectively leave the EU as if it was a “no-deal” scenario, thereby meaning that the UK and the EU would have to make emergency preparations for how they cope with the economic repercussions in 2021.
Despite the push to secure a deal by the end of this year, future relationship talks are expected to continue after 2020.
The EU’s chief Brexit negotiator, Michael Barnier, has stated that not everything can be addressed in the time remaining before the transition is set to expire. There are likely to be stop-gap measures in various industries but only time will tell which areas of the UK/EU economies will need extra care and attention.
Mr Barnier has given examples to MEPs, including air and road travel, where the EU is willing to grant temporary permissions to British citizens in order to maintain continuity and put a lid on market expectations including volatile currency fluctuations.