• Marcus Brookes
  • 12 May 2020
  • 10 mins reading time
  • Negotiation progress has been slow

  • The pressure is on Mr. Johnson to avoid further disruption

The subject of Brexit is returning to the fore. People are considering how the UK will fare with the potential upset that it could cause on top of the damaging effects of the Covid-19 tragedy.

Plus ça change…

The frustrating reality is that little has changed since my previous blog on Brexit published in late January. The deadline for the UK’s legal departure from the European Union (EU) remains 31 December 2020. That allows just seven months in which to renegotiate trade deals and regulatory oversight that account for the majority of the UK’s international trade[1].

To put this into context, the world’s biggest importer, the US, accounts for only 19% of the UK’s exports and 11% of imports into the UK. What’s more, the background to that is one of a US administration pushing for lower imports into the US to reduce its trade deficit (the net outflow of money through trade with other countries).

The US is one of many countries with which the UK trades through the EU. In fact, the UK trades with all four of the world’s largest economies (US, China, Japan and Germany) through the EU.

Agreements so far

More than £110 billion-worth of post-Brexit trade deals have been signed (using pre-pandemic trade numbers)[2] with countries such as Norway, Switzerland, Iceland, South Korea, Israel, Morocco and the Southern Africa Customs Union and Mozambique trade bloc.

However, the UK’s total trade in 2018 was more than £1,300 billion[3], the majority of which occurs within EU regulation and trade agreements. So while the progress since June 2016 is welcome, it suggests that establishing a framework for the vast majority of the UK’s international trade has yet to be resolved.

Domestic politics converging

So the pressure is on UK and EU politicians to negotiate a deal that allows both sides to continue trading after what has been an extraordinarily difficult time with the Covid-19 pandemic.

The position of the UK Conservative government is fairly clear. The primary exponent of Brexit, Boris Johnson, has reaffirmed his determination to leave the EU by the end of 2020. What change there is, has come from the opposition Labour party. Its new leader, Sir Keir Starmer, was a leading campaigner for the UK to remain in the EU. He has adopted a more ambivalent position in recent days.

While stating that the government’s pledge to deliver a deal by the end of the year is “tight and pretty unlikely”, Sir Keir wants to “hold them to that and see how they get on.” This is clever politics because it means that he does not alienate pro-Brexit voters. Instead, it leaves Mr. Johnson’s government to deliver, or backtrack and take a political blow either in the form of a potentially disruptive no-deal, or through a reversal of policy by delaying the departure date.

What next?

This is where we get into the “if”s and “but”s. Here are the three most likely scenarios as I see them.

Scenario 1 – Deal completed by 31 December 2020

If Mr. Johnson can pull the rabbit out of the hat, then the UK could be operating outside of the EU but with trade deals and regulatory framework in place. At this stage, I would not be surprised if the shape of such a “deal” were to be a delay in all but name with most legislation being adopted as is, while negotiations continue during a slow subsequent extraction process. That would probably be a positive outcome for the UK economy and for its EU counterparts.

Scenario 2 – A delay

Under the terms of the divorce deal, the UK can request a single extension of the transition period (which we are currently in until 31 December 2020). The extension can be of either one or two years which would afford the UK’s economy more time to recover while negotiators work their way through the more contentious subjects such as fishing rights. A delay would appear to have the backing of most businesses and voters[4], while Mr. Johnson also has a further four years in power in which to deal with the pandemic and lockdown first, and Brexit second. U-turning on pledges by requesting a delay might cost Mr. Johnson a few political points, but it would provide more time for the UK to transition into a more mutually beneficial post-EU-membership scenario.

Scenario 3 – No deal

This is the scenario that would be most likely to cause disruption to businesses. The inability for goods, services and people to move freely between the UK and other countries would affect sales, profits, growth and employment. Some might argue that the consequences would be insignificant compared to the fall-out from the pandemic. However, now that he has won the domestic Brexit battle, Mr. Johnson has to deliver on an issue that continues to divide the nation. And he has to do so while facing an opposition leader who has overtaken him in a leadership popularity poll released today by YouGov.


It’s impossible to know which of these scenarios we’ll get. But the pressure to deliver a robust UK economy in 2021 is mounting, and that might be the telling factor.


[1] Source: Department for international Trade,

[2] Source: Guidance: Existing UK trade agreements with non-EU countries, 4 May 2020

[3] Source: House of Commons briefing paper 7851, “Statistics on UK-EU trade”, 16 December 2019

[4] Focaldata poll of more than 2,000 adults conducted in March 2020. 64% of respondents agreed with the statement “The government should request an extension to the transition period in order to focus properly on the coronavirus.”

Important information

These are the views of Marcus Brookes, Chief Investment Officer of Schroders Personal Wealth, as at the time of publishing.

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Forecasts of future performance are not a reliable guide to actual results in the future; neither is past performance a reliable indicator of future results. The value of investments, and the income from them, may fall as well as rise and cannot be guaranteed and the investor might not get back their initial investment.

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