Economic Update: 19th December 2017

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Economic Update: 19th December 2017

BREXIT NEGOTIATIONS – PHASE ONE COMPLETE

Last week in our weekly economic update we provided a brief note on phase one of the UK and European Union (EU) Brexit negotiations. In this article, we go into greater depth surrounding the details of phase one and the timeline going forward.

After a tense week of negotiations between London, Brussels, Dublin and Belfast the draft of the ‘Withdrawal Agreement’, published on Friday, managed to satisfy all parties on the key issues of withdrawal – the financial settlement, citizens’ rights and the Irish border.

Irish border

The joint report between the UK and the EU details commitments between Northern Ireland and the Republic to have an open border between the two regions, with no new regulatory barriers between Northern Ireland and the rest of the UK. It also assumes the UK will leave the EU’s Single Market and Customs Union. This appears to be contradictory. If Britain becomes a “third-country” – that is, trading with the EU as other non-EU countries do, outside the single market and the customs union  – then border controls will be necessary. A potential solution to this conundrum is that “in the absence of any other agreed solution”, the whole of the UK would “align” to the rules and regulations of both the EU’s internal market and the Customs Union. This has allowed negotiations to move forward in the short term but still leaves certain key questions unresolved.

Citizens’ rights

The rights of EU citizens living in the UK (and vice versa) are also guaranteed, including most family reunification rights, the rights to claim benefits and the right to claim permanent residence.

Financial Settlement

While there are no specific details in the so-called exit bill, the methodology for calculating the “divorce bill” has been agreed. This should result in a net payment of around €45-55bn, after the UK’s share of assets and rebates are taken into account.

Mrs May and Chief negotiator Michel Barnier both re-affirmed that the UK will leave the EU. “Regulatory alignment” is not the same as membership of the Single Market and Customs Union, so the UK will be able to strike its own trade deals.

Despite a “new sense of optimism” in the Brexit talks, Mrs May seems to be fighting on multiple fronts. Despite reaching an agreement with EU negotiators she faced defeat at home with 12 pro-EU Tory rebels joining Labour, SNP and Lib Dems voting 309 to 305 in favour of parliament having a full vote on any Brexit deal before it is finally implemented. Notwithstanding the near ceaseless media speculation surrounding Theresa May’s fitness for office, the complexity of the task before her cannot be underestimated: on the one hand negotiating with the EU and on the other keeping at bay the opposition in the Labor Party, those pro-European Tories within her own party and the self-interest of her coalition partners, Ireland’s Democratic Unionist Party.

On Wednesday afternoon, the EU Parliament passed the Brexit resolution, declaring that “sufficient progress” had been made for talks to progress to the next stage. The European Council will issue guidelines on the next phase of negotiations with all parties under pressure to make real progress ahead of the next European Council meeting which takes place on 22nd & 23rd March 2019.

Global Markets