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.
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.
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.
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.
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