Brexit prediction: Economists expect ‘bare bones’ EU trade agreement with NO extension

Following Prime Minister Boris Johnson’s emphatic general election victory in December, the EU Withdrawal Act was given Royal Assent on January 23, with the UK leaving the bloc nine days later. However, the onset of COVID-19 has inevitably raised question marks about the possibility of negotiating a free trade agreement determining the nation’s trading relationship with the EU at the end of the transition period, fixed in law as of December 31.

The report, entitled Prospects for the UK Economy, published today by the National Institute of Economic and Social Research (NIESR) and written by Cyrille Lenoel and Garry Young, considers the overall impact the pandemic is having on the UK’s prosperity.

They wrote: “For the first time in three years, our forecast doesn’t feature a prominent part dedicated to Brexit.

“This is because the scale of the COVID-19 pandemic has eclipsed Brexit as the main concern for the UK economy.”

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However, they added: “The intensity of the pandemic will decrease at some point, and policy makers will have to go back to thinking about long-term issues for the UK economy.

“And the relationship with the EU will surely be again one of those key issues.”

The report concedes there is likely to be “some pressure” for the Government to extend the transition period beyond the end of the year because the negotiations with the EU over the new trade arrangements have been interrupted during the COVID-19 pandemic, not least when Michel Barnier, the European Commissioner overseeing the process, himself fell ill earlier this year.

While we wait for more clarity, we did not change our assumption about a standard trade agreement entering into force in 2021

NIESR report

The authors said: “While we wait for more clarity, we did not change our assumption about a standard trade agreement entering into force in 2021.

“On Brexit, the government has made it clear that it wants to negotiate a deep free trade agreement with the EU by the time that the transition period ends on December 31 2020.”

Nevertheless, the pandemic was likely to reduce the scope of such a deal, the report warned.

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Mr Lenoel and Mr Young explained: “The short timetable, and the government’s apparent preference for regulatory divergence, is likely to result in a bare-bones agreement.”

And inevitably there will be a price to be paid in some areas.

The report stressed: “As such, UK exporters will face increasingly costly non-tariff barriers to trade with the EU from next year.

“In the long term leaving the EU single market and customs union is expected to reduce GDP by 3–4 percent relative to what it would have been had the UK remained in the EU.”

The report tallies with comments by Mark Littlewood earlier this month, who told he believed the pandemic might actually make a deal more achievable by focusing minds on the job.

He said: “I am desperately looking for a small silver lining in what is obviously a very dark cloud but it might make the tensions around the Brexit process dissipate somewhat.

“When we’re dealing with an international pandemic and an emergency which poses a considerable peril for the entire global economy, we are surely not going to run into the ground about getting a simple Brexit deal over the line.

“Maybe they can metaphorically, although clearly not literally, shake hands on that and get it done.

“There is a greater emergency to deal with getting us out on a simple free trade deal with other things to be negotiated afterwards.”

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