Brexit: base case of a transition period followed by a free trade agreement unaffected - Rabobank

According to analysts from Rabobank, a hard Brexit remains a possibility until at least autumn 2018 and the consider that any extension of negotiations on the future trade arrangements into the transition period will have negative implications for the economy.

Key Quotes: 

“The UK has one year left as a full member of the European Union. The EU and the UK have agreed on a transition period, starting 30 March 2019 till 31 of December 2020. This is positive for economic continuity as it gives businesses, governments and citizens more time to prepare for the future relationship between the UK and the EU.”

“During the transition period the UK will in effect remain part of the European Single Market and the Customs Union. European legislation will continue to apply to the UK. However, the UK will no longer have a say in the making of new legislation and it will be allowed to start negotiating trade agreements with other countries.”

“The agreement on the transition period is not legally binding until settlement is reached on the final Brexit withdrawal treaty. This is expected to happen in the autumn. However, for this to happen there are still a few hurdles to overcome. The Irish border will be the biggest challenge. If there is no agreement on this point there will be no transition period. A hard Brexit without a deal is still a risk. In that case trade barriers will come into place immediately.”

“The risk is now that the transition period will come into effect with only political agreement on the main elements of the future trade relation, while many practical aspects that matter to businesses remain to be negotiated. As a result businesses will have to deal with a significant degree of remaining uncertainty till the end of the transition period.”

“We still expect a transition period until 31 December 2020 followed by a Free Trade Agreement somewhere between the EU’s deal with Canada and the agreements with Switzerland. However, the support of Labour for a customs union does increase the odds of a custom union being part of such an agreement.”