Brexit and the Future of UK-EU Relations
What the late-2020 Brexit trade deal could mean for markets in the near-term and in the future.
- The late December 2020 trade deal between the United Kingdom and the European Union (EU) will ensure the continued flow of goods between the two jurisdictions and – for the time being – prevent any tariffs and quotas from being introduced. However, the deal does not eliminate the possibility of trade protections being introduced by either side at some point in the future.
- While markets may have initially hoped for a “softer” Brexit deal, the realities of a “hard” agreement – one in which Britain establishes increased sovereignty from the EU despite costs to its economy – was largely priced in by markets. Over the near term, Brexit is likely to diminish economic growth prospects in the UK.
- Tensions over the supply and distribution of Covid-19 vaccine doses exemplify the political rancor that is likely to remain between the UK and EU for the foreseeable future. British Prime Minister Boris Johnson and his colleagues will prioritize their domestic political audience, while the EU will prioritize its member states and organizational cohesion.
- Adjustments on the parts of goods manufactures and exports on both sides of the agreement will decelerate trade, at least in the near term. The effects of the Brexit agreement on UK and EU service sectors, including the financial sector, remain to be seen and are complicated in part by the ongoing Covid-19 pandemic.
- The EU may look to weaken the hold of the UK financial services sector on its economy even if it results in short-term disruptions to its member states. The political ramifications of Brexit suggest that both the EU and UK will prioritize their separate constituencies over goodwill and mutual interest.
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Unless otherwise noted, the opinions of the authors provided are not necessarily those of Natixis Investment Managers. The experts are not employed by Natixis Investment Managers but may receive compensation for their services. The views and opinions are as of February 4, 2021 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.