The U.K. and European Union continued negotiations late Dec. 23 on a post-Brexit trade accord that is reportedly within reach as both sides raced to avert a disorderly economic split by the end of the year.
Negotiators from London and Brussels have struck the outline of a trade pact and are finalizing the deal's wording, Bloomberg News reported Dec. 23, citing officials with knowledge of the matter. U.K. Prime Minister Boris Johnson and the EU still need to sign off on the trade agreement, which could still fall apart, the report added.
An agreement could be announced Dec. 23, The Wall Street Journal also reported, citing sources familiar with the negotiations.
The pound rose sharply following reports of the Brexit breakthrough. The currency was trading nearly 1% higher against the U.S. dollar around 10:23 p.m. London time.
Reaching a trade deal would prevent the U.K. and the EU from reverting to trading on World Trade Organization terms from Jan. 1, 2021, when Britain is no longer part of the EU customs union and single market. That means tariffs would not be imposed on goods from food and wine to autos and machinery.
The U.K. left the EU on Jan. 31, 2020, but a transition agreement ensured that it would be business as usual until the end of this year as both sides negotiate a trade agreement. For months, the trade deal talks were stuck over the issues of fishing rights; enforcement; and the so-called level playing field, an insistence by the EU that Britain not only adhere to the bloc's rules today but also continue to do so as EU standards and regulations change.
S&P Global Ratings has warned that failure to reach a trade deal with the EU could weaken the U.K.'s economic recovery from the coronavirus crisis and lead to a depreciation in the pound, higher inflation, reduced household spending power and weaker foreign direct investment flows into the U.K. The rating agency projected that U.K. GDP growth in 2021 would just be 4.6% in a no-deal scenario, compared with an expected 6.0% expansion under an agreed trade deal.
As both sides raced to hammer out a deal over the past few weeks, financial services companies continued to prepare for a post-Brexit future, with U.S. bank Morgan Stanley reportedly looking to move €100 billion worth of assets from the U.K. to Frankfurt. Ireland and Germany have attracted the highest number of global financial institutions looking to move business out of the U.K. and maintain access to European markets.