The United Kingdom faces precarious times with the Brexit deadline fast looming on March 29, 2019. At precisely 23:00 hours GMT, the UK is slated to leave the European Union – deal or no deal. However, the European Court of Justice (ECJ) has made accommodation for the UK to cancel its Brexit plans at any point until the deadline for full reinstatement in the European Union. Unfortunately, political rancour in Parliament has the Tories and Labour at loggerheads on how best to proceed with the Brexit saga.
Proposals May Yield Positive Trade Prospects for the UK
The UK financial markets could face rocky times ahead if EU legislators fail to protect UK banks and continental banks from panicked trading activity. The absence of a Brexit deal and no guidance as to how insurance companies and EU banks will proceed makes it especially difficult to evaluate the potential outcomes of the impending Article 50 deadline of the Lisbon Treaty. The risks faced by UK banks will invariably be felt on UK bourses where the price for stocks on the FTSE 100 index and other global markets will be impacted by negative sentiment and volatility. Various policies are now being implemented to allow UK banks to access unlimited amounts of foreign currency. This will invariably weaken the GBP by increasing demand for USD, EUR, SEK, NOK and other currencies.
The importance of a transition deal cannot be underestimated. If UK and EU regulators can come to an agreement on how best to proceed with Britain’s exit from the EU, the GBP will enjoy a resurgence and stability will return to the UK financial markets. The Bank of England is intent on protecting the financial services industry, particularly the efforts of the Monetary Policy Committee (MPC) of the BOE. It appears somewhat ironic that the Bank of England is primarily concerned with protecting its own, with scant regard for the fate of other industries in Britain. For now, it appears that the only certainty is the uncertainty of a Brexit. London in particular remains the epicentre of European commerce and global financial operations. That could all change within weeks if the UK Parliament abandons support for the Prime Minister and pushes the UK deeper into crisis mode. In an apparent vote of no confidence, the UK Trade Minister, Liam Fox has cancelled the Brexit briefings update with UK business leaders, given the stalemate that is currently ensuing. Guy Fawkes fireworks are expected to come early this year, perhaps as early as March 29, 2019 and not for celebratory purposes either.
What Impact Could a Hard Brexit Have on UK Industry?
CNN Business recently reported that 60% of UK trading activity risks disruption in the event of a hard Brexit. The EU is the UKs main trading partner, and an ugly divorce – Brexit – will shutter business activity for many UK institutions. As a major negotiating bloc, the EU has multilateral trade agreements with the rest of the world, and a Brexit will effectively leave Britain high and dry – out in the cold. According to statistics, some 40 trade agreements with the EU account for trading activity with an estimated 70 countries and make up 13% of UK trading activity.
For its part, the United Kingdom’s trading activity is heavily skewed in favour of the EU at 49%, 14.5% with the US, 5% with China, 13% embedded in EU trade deals, and 18.5% with the rest of the world. In the absence of a Brexit deal, the UKs trade agreements will be governed by the WTO rules which feature higher tariffs and duties. While the UK government is likely to reduce import tariffs to make Britain inherently more attractive to foreign countries, UK goods and services will be subject to significant barriers in the form of unfavourabletrading conditions.
As it stands, Britain has yet to embrace an acceptable Brexit strategy which will protect UK exporters, stabilise the GBP, and bolster public confidence about the upcoming Brexit. Already, the UK has several important trading deals in place with major trading partners like Switzerland and Chile. However, these pale in comparison to the EU agreements. A big part of the problem facing Britain is its negotiating position as a single entity rather than a member of a large trading bloc with significant clout like the EU. Asian juggernauts – Japan and South Korea – set up operations in the UK on the proviso that these offered unimpeded access to the European Union. Clearly, these Asian tigers will seek compensation to remain in the UK.
US Concerned About EU/UK Negotiations on Trade
Across the Atlantic, US Sen James Lankford is concerned that a UK agreement with the EU, particularly a bad deal, could unfairly impact the UKs trading relations with other countries like the US. The negotiating terms and conditions put forth by UK and EU teams could have a detrimental impact on the UKs trade relations with other countries like the US. The UK Parliament has been hard at work crafting legislation that would make it difficult to enter into long-term trade agreements with the US – something eschewed by the US. Prime Minister Theresa May recently agreed to a deal with EU negotiators, although Parliament has vowed to fight tooth and nail.
In the words of the former Commons shadow leader, MP Chris Bryant,
‘… I want to know whether it is going to be easy for British people to go on holiday and people to come here, and whether it’s going to be easy for British farmers to sell beef and lamb and so on across Europe.’
Prime Minister May agreed to inject some £1.6 billion to towns across the UK which voted to leave the EU. Known as the Stronger Towns Fund, this initiative is aimed at improving the disparity in benefits enjoyed by prosperous parts of the UK. The Gini coefficient-style measure being implemented in the UK is seen as a wealth redistribution initiative to help spread prosperity across the country. The Brexit backlash has had an impact on the success of UK small business, big business, and the lives of everyday citizens. The uncertainty generated through failed negotiations has created an impasse. The GBP/USD currency pair – a barometer of the health of the UK economy is a far cry from its former strength when it was trading at around 1.5000 in 2016. In time, things will invariably change but the big question is which direction will things move?
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