Fear of trade delay with EU after Tory election victory

Boris Johnson’s overwhelming win in the recent general election has done little to soothe concerns in London’s financial district (known as the ‘City’) over the UK prime minister’s ability to negotiate a trade agreement with the European Union by December 2020.
Financiers in the City said securing a trade deal by the end of next year is “unrealistic” and have called Johnson’s Brexit plans “characteristically optimistic”.
Cavendish Asset Management’s co-fund manager Nick Burchett, said: “Given how short the deadline now is, a trade deal by 2020 is unrealistic. The UK certainly has a much stronger hand to square up to the EU and drive a harder bargain.”
He added: “The most likely and all-too-familiar outcome will be that Johnson makes some headway, before the trade deadline is extended further. While this isn’t ideal, the strengthened government means there is definitely more than a shred of light at the end of the Brexit tunnel.” Experts in the financial district warned that with the time moving on negotiations with the withdrawal agreement having passed, looming uncertainty around trade agreements will lead to volatility in the pound and UK assets in 2020. The election results might boost the short-term economic outlook but expectations for 2021 are downbeat, as the economy may experience a mini post-Brexit recession.
Head of fixed income at Hermes Investment Management, Andrew Jackson, said: “Pressing on with an orderly exit from the European Union still poses a level of uncertainty and has the potential to cause a modest drag on business activity over the next year. A hard Brexit could lower possible growth of the UK to a level below its potential as a member of the EU, but the landslide majority win does somewhat limit the risk.”
Investment director at Fidelity International, Matthew Jennings said: “It seems extremely optimistic to think we will get a trade deal with the EU (by December 2020), which is not a fast-moving body. You need months of negotiations. It is characteristically optimistic of Boris Johnson to say we will get it through. It is certainly possible and having a big majority helps, but there are no historical precedents to suggest it will be as easy as he claims.”
The City’s priority should be to persuade Johnson to drop his commitment not to extend the transition period beyond the end of 2020. Despite Johnson’s protestations, few experts believe it will be possible to agree anything but the most damaging of trade deals in such a short time.
“The question that will most preoccupy the City — besides timings — is where the line will be drawn over EU regulatory harmonisation and access to markets.
The EU will no doubt consider that to be a watertight package, but the new Conservative government will be thinking globally when it comes to trade and domestically when it comes to the economy,” said Dame Helena Morrissey, a City veteran.
Some expressed concern about a no-deal Brexit, despite the Conservative Party having its biggest majority since Margaret Thatcher’s landslide election victory in 1987. Sir Martin Sorrell, the advertising veteran, commented: “The good news is that we now know clearly what the electorate wants: ‘get Brexit done’ and a rejection of Corbynism. Unfortunately, we won’t know what the trade deal with Europe will look like for some time, maybe even no deal. So, some uncertainty remains.”
However, others in the City were optimistic about Johnson’s chance of meeting the deadline for reaching a trade agreement. Chief economist at Toscafund, said: “We can now relax. I’m extremely confident a trade deal will be done in a timely way because it serves no interests across the EU to fail to get it done.”
The optimists also hope Johnson will pivot back towards a closer trading relationship with the EU.
It is true that there has been no sign he would be willing to accept greater regulatory alignment or labour mobility in return for better market access. But his previous u-turns suggest almost anything is possible.
However, all this optimism is dismissed as wishful thinking by those who say Johnson will continue along the path he has already signalled. He will attempt to get some minimalist trade deal with the EU before the end of next year, and in the very likely event that he fails will be prepared to exit the transition period without a deal.
(The author is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)