A Swift Breeze of Calm as Brexit Deal is Reached

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Sunday, December 27, 2020 05:07 AM / by Proshare Research/ Header Image Credit: Euronews

 

A deal between the United Kingdom and the European Union have been reached after several months of negotiations. The major sticking points before the deal was reached were issues surrounding fishing rights, governance, and a level playing field. Economic analyst expressed their fears that both sides would not reach an agreement, but the recent trade deal between both parties presents an enormous economic gain. The deal will ensure the UK and the 27-nation bloc can continue to trade in goods without tariffs or quotas, smooth trade worth hundreds of billions of pounds and euros a year between the pair. Furthermore, the EU achieved a level playing field implying that neither side can undercut the other with subsidies or similar. Some other major sticking points from the deal include:

 

  • UK citizens would no longer have the right to work, live, study, or start a business in the EU without a visa.
  • The UK will be able to further develop British fishing activities for at least 5-and-a-half years, during which time European fishing communities will be safeguarded
  • A shared commitment to protecting the environment, to fight against climate change and carbon pricing.
  • A shared commitment to protecting social and labour rights.
  • Keeping standards on tax transparency.
  • Protecting passengers' and workers' rights in the transport sector.
  • The UK's continued participation in several EU programs until 2027 such as Horizon Europe, subject to a UK financial contribution.
  • Zero tariffs and quotas on goods.
  • Border checks will apply between the UK and EU member states.
  • There will be no hard border on the island of Ireland between the Republic of Ireland and Northern Ireland.

 

The UK and the Euro Area are still reeling from the negative effects of the COVID-19 pandemic which has negatively affected their economic growth. Economic experts had initially expressed their worries that a no-deal Brexit scenario would have affected both parties negatively but had a more devastating impact on Britain's economy. Both the UK economy and the EU economy were already recording a contraction in their GDP caused by the pandemic coronavirus and would have further worsened if a no-trade deal is reached (see Chart 1).

 

 

Chart 1: The UK and the Euro Area Annual GDP Growth Rate (%)

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Source: Trading economics, Proshare Research

 

It was forecasted by the Office for Budget Responsibility that a no-deal could wipe 2% off the UK's economic output, as the UK's major trading partner is the EU. In 2019, UK exports to the EU were £294bn (43% of all UK exports), while UK imports from the EU were (52% of all UK imports) £374bn (see Chart 2).

 

Chart 2: UK Trade with the EU Member States, 2019 (£'m)

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Source: ONS, Proshare Research

 

The Brexit trade deal reached will help soften the burden of an economic contraction and disruption caused by the pandemic coronavirus both in the UK and the EU economy. Furthermore, both parties would likely record an increase in confidence and investment as the clog of uncertainty surrounding Brexit talks has been eliminated.

 

Despite the trade agreement between both parties, various stakeholders have expressed mixed feelings about the deal. Some stakeholders involved in trade and hauling noted that the vast amounts of new paperwork processes and border checks would disrupt their business operations while some manufacturers noted that a no-deal Brexit would have been disastrous for exporters and welcomed the trade deal agreement with cautious optimism.

 


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