EU-UK Brexit Negotiations

UK Prime Minister Boris Johnson and other high-ranking UK government officials connected on 15 June 2020 via a video call with the leaders of EU institutions, marking the first of multiple top-level Brexit meetings scheduled until the end of July. Prior to the new negotiations on future UK-EU relations, the UK government had formally notified the European Union that it will not extend the current post-Brexit transition period beyond the previously agreed date of 31 December 2020. However, Cabinet Office Minister Michael Gove stated that the United Kingdom would not impose full customs checks on goods coming from the EU before July 2021.

Significance

The UK government's decision not to prolong the post-Brexit transition period makes the timely finalisation of a fully fledged trade agreement and UK-EU arrangements for other areas such as future security collaboration increasingly unlikely. Both parties would probably have to conclude negotiations by the end of October to have enough time to ratify any possible agreements before the transition period ends.

IHS Markit's baseline scenario now assumes that, in the possible absence of a fully fledged treaty, a disorderly Brexit from January 2021 would be less likely than the introduction of mutually acceptable temporary emergency measures. These would facilitate further negotiations and avoid disruptions to the highly integrated supply chains, cross-country travel, and the use of services following the severe EU and UK recessions induced by the coronavirus disease 2019 (COVID-19) virus impact.

Nevertheless, details of any potential interim arrangements remain unclear, making it difficult for UK, EU, and international businesses to plan ahead. The UK's GDP growth is expected to recover from mid-2020 after its COVID-19 virus lockdown triggered a very severe recession in the first half of the year. However, the uncertain path for EU-UK trade negotiations suggests that the pace of the recovery will be reduced. Should failed trade talks result in the UK reverting to WTO terms to trade with the EU, the UK's economy would likely face a further recession in the first half of 2021.

Posted 17 June 2020 by Jan Gerhard, Senior Analyst Country Risk Europe, S&P Global Market Intelligence and

Raj Badiani, Economics Director, Insights and Analysis, S&P Global Market Intelligence