Remember back to a simpler time. It’s not that long ago. When all we had to talk about was Brexit. Do you miss it?

A global pandemic puts things like that into perspective. Yes, its politics. Yes, it’s new and unprecedented. Yes, its a challenge. But a crisis such as what we’re going through puts things like Brexit into perspective.

Nevertheless, the end of Phase Two of Brexit is coming, and as of now, a no-deal scenario at the end of 2020 looks the most likely scenario right now.

No progress

It was said that the UK and EU would know by June whether or not there was going to be a deal or not. As it is, reports from both sides of the negotiation table show very little progress has been made at all. Remember, at the end of last year we were told that a trade deal was possible with the EU by the end of 2020.

The EU has said that if insufficient progress has been made by June then an extension to this phase of the Brexit process would be required. The UK Government has insisted that there will be no extension. As I see it, I do believe that there will be no extension. That places a no-deal, or more accurately, a WTO arrangement is back on the table come January 1st 2021.

To that end, the Bank of England this week told lenders to boost its plans for no-deal at the end of the year. In updates given by the EU and UK representatives, both confirmed that very little progress has been made on any of the major issues.

In the latter part of 2019, the OECD predicted that a no-deal scenario could shave 3% from UK GDP in 2020, just as the global economy starts a downward trend. Obviously they would not have known in September 2019 that a pandemic was going to shatter the global economy anyway, but it was widely accepted that the global growth cycle was coming to an end regardless and that growth was either going to stagnant or fall into a gentle recession before too long.

An extension, if there was to be one, was due to be asked for by the end of this month. We know the UK Government has already ruled that out. So what would be the motivation for sticking with such a short timescale?

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Multi-faceted politics

Boris needs a win. He was widely praised for his handling of the pandemic, but has lost a lot of that support as plans to reopen the UK economy have been accused of being too quick, lacking in detail and thought, risky, and putting money before life. I was one of those who supported the approach at first but have changed my mind since the attempts to reopen began, and I do myself believe that money is now being put before life, as its reported plans to reopen pubs and establish air corridors to other countries are being rushed through. Perhaps that is a rant for another day.

The UK Government needs a win. Something it can say it did, after promising to do so. Taking the UK fully out of the transition period at the end of this year would be one of those aims. No matter your politics, it would be something he said he would do, and did if he were to take us out completely by the end of this year.

My other suspicion is that given the fact every economy on earth is going to be hammered by the COVID-19 crisis this year, falling well into double-digit drops in GDP for Q2 and potentially for the year, another couple of per cent on an already large number is something the country could stomach. Had growth been slow, or at near-zero without the pandemic, this wouldn’t have been an option. But as things are, this is the lay of the land now and perhaps they think that vast swathes of damage are already going to be dealt to the UK, a no-deal scenario can’t add that much more.

There is also the US factor. What is happening in the US is both tragic and dramatic. With effects rippling around the world, including here in the UK too. With a November election coming up, and the chances of Trump being reelected growing slimmer by the week, there may be soon an urgency to put the framework in place for a free-trade deal with America in as soon as possible. We don’t yet know what approach Joe Biden will want to take if he wins when it comes to trade relations with the UK, and my guess is Boris won’t want to wait to find out.

When push comes to shove, what I think we’ll end up with is a bare-bones agreement with the EU, with perhaps some tariffs but nothing that equates to large financial sums. That bare-bones agreement may well be accompanied by an agreement to build the future relationship from January 1st 2021, which gives both sides a chance to say to their own electorates that they won, and they proved something. Boris would be able to say that an agreement was put in place in record time, even if there isn’t as much meat on the bone as they would have liked. The EU would be able to say that the UK has been made to back down and accept their terms, even if they had to give ground on key issues such as fishing.

Talks are also going to be influenced by a number of factors in the run-up to the end of the year. Most obviously COVID-19, which is going to have ramifications on us all for years. An increasingly volatile Trump, who may well push things right to the very edge with countries like Iran and China to provide a distraction at home and build support in the run-up to the election. There is also now the spectre of rising civil disobedience. This pandemic, along with the murder of George Floyd in the US has deeply exposed the inequalities and struggles so many sectors of our society suffer from. It’s not impossible to believe that against a backdrop of large unemployment in the UK towards the end of the year, that we could see more protests and riots that change the course of Government policy in the years to come.

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