Brexit, possibly one of the most talkedabout topics over the past four years, has in the space of two months been relegated by the ‘C’word - to just a few column inches a week. The escalating crisis that has impacted all our lives has quite rightly consumed much of the bandwidth of government departments. Notwithstanding the fact that some of the negotiating teams contracted COVID-19, talks on trade and the future relationship between the UK and EU were put on hold mid-March. But the clock continues to tick down to the 31st December deadline and with a tentative return to talks by video conferencing, will Brexit happen, or will we see a request for a ‘flextension’?

REALISTIC OR FOOL HARDY TIMEFRAME

The UK government continues to stick to its roadmap that trade negotiations can be completed by the end of the year, and with a deal. Prior to the pandemic, the timeframe was widely criticised for being too optimistic. Throw into the mix a growing economic crisis; you could forgive politicians around Europe who do not see this as a priority at present. Surely the latest obstacles of travel restrictions, corralling teams from both sides (whilst social distancing) virtually or otherwise would at least warrant a delay.

Both sides are continuing, and following a month postponement, talks have since resumed. A new schedule of high-level talks has been diarised, and a new way of conducting negotiations remotely has been put in place. Yet several deadlines remain, not least of all 30th June. This is the date a decision must be made as to whether an extension of the transition period is given, either one year or two years – or not at all. This decision is to be taken jointly by the
EU and UK teams.

The EU and a number of member states have already made their position clear that reaching an agreement would be difficult under the circumstances. Germany, who takes over the rotating presidency of the EU, has also suggested an extension would be beneficial. The UK, however, has been clear they would not seek an extension to the transition period. 

ECONOMIC GAMBLE?

A lot of ground needs to be covered between now and November when a deal is expected to be drafted for sign-off. But both sides will be wrestling with more than just the fallout from Brexit. Economies across the EU, that are suffering as a consequence of COVID-19, will be bracing themselves for a deep recession. Early indications suggest that the EU bloc of countries has recorded a 3.5% drop in GDP in Q1 2020 with forecasts pointing towards a double-figure drop by the end of the year. France and Italy have already slipped into recession, and with Germany not too far behind, the appetite on the continent for Brexit disruption may not be there.

The same can be said for the UK. The International Monetary fund believes that the UK’s economy will contract by 6.5% in 2020, as a result of the pandemic. The impact of a no-deal exit could further exacerbate this by 4.5% in the first half of 2021, according to the Office for Budget Responsibility’s (OBR’s) pre-COVID-19 estimations. Spending on propping up the nation through this crisis is already estimated to exceed the £330 billion as outlined by the Chancellor at the beginning of April. All these figures make for heady reading. It could be too much of a gamble for the government and hardened Brexiters to take when the economic indicators here and abroad are so precarious.

DEAL OR NO DEAL – TRADE AGREEMENTS

Whether a deal is achieved or not, the UK’s need to enter into trade agreements with countries around the globe will grow in urgency- especially if the economy needs to receive a boost in 2021. However, trade negotiations require large delegations, time, and often require frequent travel. All of which are limited at present. Whilst several letters of intent were signed with other countries to adopt fully upon Brexit, key deals with the US and China may not be achievable. The fallback that the country has if a no-deal is pursued would be to undertake trade on a World Trade Organisation tariff basis. Whilst not ideal for some sectors it does provide a framework, pending a greater push for deals in 2021.

No doubt Prime Minister Boris Johnson and his colleagues will want to honour their election pledge of ‘Get Brexit Done’ and to follow through years of work to get to this point. Yet, the responsibility of protecting businesses, jobs, and people’s health will take precedence – something that is recognised on both sides of the Brexit debate. In the meantime, the negotiation process is likely to pick up pace over the coming months as we hurtle towards the “do or don’t” date of 30th June. Should a pause on proceedings prevail, then for many business sectors there may be a momentary sigh of relief. If not, then businesses will need to start dusting off their Brexit planning once again. 

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