LGIM: Hetal Mehta, Senior European Economist, comments on Brexit

LGIM: Hetal Mehta, Senior European Economist, comments on Brexit


“This week’s “high level” meeting between PM Johnson and a number of EU representatives ended with the usual level of positive platitudes but ultimately has not pushed the negotiations along further, with key areas of disagreement remaining unresolved.

The UK has now confirmed that it will not submit a request for an extension to the current transition period. After the 30th June deadline for this passes, the legal hurdle for extended negotiations will be higher and so puts pressure on both sides to make concessions if a deal is to be reached. Indeed, both sides agreed “new momentum was required” and Johnson indicated his willingness to get deal done by the end of July.

However, that is an extremely tight schedule for a bespoke deal to be brokered given little progress so far this year as both the UK and EU have been absorbed in their efforts to fight the coronavirus. The chances of the UK having to either sign a basic deal to avoid tariffs (but risk being exposed to regulatory changes that make market access harder) or to end the transition with a shift to WTO rules has increased significantly.

As the deadline appears on the horizon, markets are increasing their focus on Brexit, particularly on the FX side. We feel current pricing is broadly consistent with a repeat of the brinkmanship seen last year, but ultimately avoiding a Hard Brexit.”