The Brexit Transition

November 12, 2018

 

The seemingly never ending saga that is Brexit may or may not have hit a turning point in recent days with an apparent agreement between the UK and the EU. The official announcement was that the so-called transition period will now end Dec 31st 2020.

 

We’re often asked by our US clients as to what happens next for the UK from an economic perspective but it’s literally anyone’s guess still. More recent discussions over Brexit appear to have centred largely around the question of the border between Northern Ireland and the Republic of Ireland. On paper Brexit is incompatible with a long standing peace agreement for Northern Ireland where the physical border between North and the Republic are purely for the purposes of a line on a map versus any economic division.

 

It would still appear though to be completely nonsensical for either the UK or the 27 EU countries not to have a trade deal in place post 2020. The majority of national trading patterns for EU countries is for the bulk of exports (excluding services for which there is no single market) to be with other EU countries.

 

Ultimately and of paramount importance for Brexit are the financial markets of London, over 90% of European trade is financed by the City of London markets. The EU has long viewed the City with frankly a jealous eye but it is inconceivable that the secondary size markets in Frankfurt or Paris would be operationally capable of expanding to meet demand for a mixture of reasons. It is the strength of the City of London that will finally determine the outcome of Brexit irrespective of shorter term political considerations on either side of the debate.

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