Brexit uncertainty still elevated, despite transition deal hopes - ING

The fact the UK government is increasingly coalescing around the idea of a two-year transition deal could help unlock some hiring and capital spending by firms, suggests James Smith, Developed Markets Economist at ING.

Key Quotes

“There are still plenty of obstacles to be overcome in the negotiations before a transition period is signed and sealed. Without concrete agreement on the trading environment and length of the transition, some firms will inevitably have to remain cautious. To take one example, the airline industry will want clarity very soon on their ability to continue flying freely between the UK and Europe if they are to start planning schedules, hiring and selling tickets for 2019.”

“There's also a risk that cliff edge fears could still make a comeback. In the same way businesses will need advance warning of the form the transition will take, they will also need to know what the UK's ultimate trading relationship will be well in advance of the transition coming to an end. If the post-Brexit overlap is indeed two years, then this deadline could come into focus pretty quickly after the UK formally leaves the EU in 2019 - though of course the transition timeframe could be longer or extended.”