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Brexit update: Disruption is on the table as negotiations resume

DuckerFrontier, July 29, 2020

The novel coronavirus (COVID-19) outbreak has masked forthcoming Brexit risks and shifted the UK government’s full focus to managing the pandemic and its effects on the UK economy. However, Brexit is scheduled to take place after the end of the transitional period – legislated to end on December 31, 2020 – and continues to impact the economy amid COVID-19 disruptions. Our analysts are monitoring the latest Brexit news to help your business manage volatility in your markets and industry.

In line with our scenarios published in 2018, the UK intends to pursue a Free Trade Agreement (FTA) with the EU to avoid trade barriers and additional costs for businesses when trading with the EU. The UK government decided not to extend the transitional period in June, thus 2021 is Brexit year. Even if the UK requests another extension as a last resort, the extension would not be longer than three months for political reasons. At the same time, the pandemic will limit the UK government’s time and resources to adequately prepare for a smooth Brexit transition. Businesses should carefully monitor the timeline of events and be ready and agile enough to trigger their no-deal contingency plan to safeguard their operations from any disruption.

Disruption is possible in 2022, depending on the outcome of FTA negotiations

Negotiations toward an EU-UK Free Trade Agreement have stalled due to COVID-19-related disruption. However, the clock is ticking, and the UK government refused to extend the transitional period. Businesses should know that tariff and non-tariff barriers could be imposed in 2021–2022, depending on political will.

In a no-deal event, trade barriers will be imposed in line with the UK Global Tariff regime

Agreeing on the main FTA framework for the new relationship before the end of the transitional period could end up unfruitful. In this no-deal scenario, tariff and non-tariff barriers will be enforced by the UK to EU-imported goods in accordance with the Global Tariff program published by the UK government in mid-June and by the EU to UK-imported goods in line with WTO rules.

The combined COVID-19 and Brexit effects will determine sectoral winners and losers

A long lockdown period will leave the UK economy severely bruised in 2020. Brexit will give the final blow to the economy, leading to heightened investor uncertainty post-2020. Nevertheless, select sectors will still make gains in the COVID-19 and Brexit environment, but others will be less resilient to the potential disruption.

Actions for business professionals operating in the UK
  • Businesses should prepare their operations for an end of the transition in January 2021 or in March 2021 at the latest, in the event of an extension of the deadline. No-deal Brexit fears will resurface after the lack of progress in UK-EU Free Trade Agreement negotiations, exacerbating the existing economic uncertainty associated with COVID-19’s negative impacts on the British economy.
  • Assess the impact on your business considering the new tariff inputs and be ready to trigger your contingency plan to account for disruptions to existing supply chains and the business environment.
  • Determine how to best adapt strategies across various functions of your company, focusing on sectors and customer segments that are positioned to record strong growth or be more resilient to the disruption.

The business environment today requires you to process information about your markets, industry, and company in real-time and translate the information to power business decisions. We are thrilled to launch a solution to solve this challenge. FrontierView Mobile puts the right information at the right time, at your fingertips! Visit FrontierView’s website to learn more about the mobile application and the complete FrontierView solution suite. Download the app for iOS or Android to start monitoring now.

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