There was a sense of celebration and commemoration when the UK officially left the EU on January 31st this year, but in truth this represented little more than the end of a phoney war that achieved nothing except for ushering in the so-called ‘transition period’.
Make no mistake; the trade talks between the UK and the EU were always going to be the most arduous aspect of Brexit, and while the Covid-19 outbreak may have distracted us from this, it’s becoming increasingly apparent that a no-deal exit remains firmly on the table.
We’ll explore this in further detail below, while asking whether or not the UK and its assets are truly prepared for a no-deal Brexit and all that it entails?
What’s the Latest State of Affairs?
The transition period has seen Boris Johnson set a number of self-imposed deadlines, while steadfastly refusing to even countenance extending the transition period beyond December 31st.
This is despite the logistical and socio-economic impact of the coronavirus pandemic, which has ravaged nations such as Italy, Spain and the UK and prevented negotiations from continuing at the requisite pace.
As a result, the two sides are still poles apart on key issues such as fisheries and creating a level playing field for trade, with experts such as former Europe Minister Denis Macshane predicting that a deal may not be ultimately struck until the last minute.
That’s if a deal is struck at all, of course, with Boris Johnson being influenced by Conservative members on the right and the left of an increasingly bitter divide.
More specifically, the members of the ERG Group continue to push for a hard or no-deal exit, while there remain deep concerns about interruptions to European (and global) trade and the future of London as the capital of the world’s financial market.
What Would a No-deal Brexit Really Mean?
While no-deal has been spoken about extensively since the Brexit vote in June 2016, there remains a sense that UK businesses and the economy as a whole simply aren’t prepared for leaving the EU without a formal trade agreement.
Of course, many will argue that this is because firms can only take so many steps to prepare for a no-deal, and there’s no doubt that fears over the economic impact of this state of affairs have been heightened over the course of the last week.
According to forex broker Tickmill, a report from the Institute for Government confirmed that most UK firms are currently unprepared for this outcome, with an estimated 60% having yet to make any concrete preparations for a no-deal either before or after the pandemic.
On a similar note, the pandemic has left businesses in a far worse position economically than they were in October 2019, when talk of a no-deal was also rife and posing a threat to entrepreneurs.
So, should the PM remain steadfast in his approach and either abandon trade talks or usher the UK to the brink of a no-deal, the UK economy, its firms and the GBP will suffer directly as a result.
From a technical perspective, the EUR/GBP has embarked on a slight upward trend of late, thanks largely to the perception that the EU is better placed to cope with the fallout of a no-deal exit (and the recent Covid-19 stimulus package agreed by the 27 member states).
We should expect this trend to continue in the future, as the prospect of a no-deal Brexit becomes increasingly prominent on the horizon