Forex Trading Library

Brexit Negotiations Enter Crucial Stage

...One Year Out From Departure Deadline

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1 Year Left To Brexit

Brexit negotiations have dominated the UK’s economic landscape over the last two years, beginning with the initial referendum in 2016 and then the triggering of exit talks last year. However, with only a year to go until the UK is set to officially depart from the EU, focus on the issue is growing further and talks are entering into their most crucial stage yet.

Divorce Bill & Transitional Period Agreed

In terms of progress made so far, negotiations have been tricky and somewhat delayed but there have been some key forward movements. In December of last year, both sides were able to agree on the so called “divorce bill” which is the UK’s post-Brexit financial liabilities due upon leaving the EU and will be roughly £35 – £39 billion.  Following this agreement, a deal was reached just last week on a transition period for the UK. This means the UK will remain in the single market after Brexit until December 2020, allowing for a smoother adjustment for the UK economy, a sign that has been welcomed by investors.

Dispute Resolution Seeing Progress

In terms of dispute resolution, the UK and the EU are both still working to agree a plan for settling disputes which arise during the transition and are also working to clarify the role of the European Courts of Justice after Brexit has occurs. According to comments made by UK PM May, the UK is likely to accept ECJ verdicts in some areas, which shows some compromise following statements earlier in the process that the ECJ would have no jurisdiction in British matters. However, this area is still in need of further work before any concrete agreements are made.

Irish Border Remains Key Issue

One issue which is still proving a sticking point is that of the Irish border. Both the UK and the EU have agreed on the need for a “backstop” option if the Brexit deal fails, in an effort to avoid a hard border being implemented which is seen as posing a threat to the Irish peace process. However, negotiations are proving particularly difficult and as yet, we are no closer to seeing an agreement on this issue.

Brexit Deal Still In Question

Finally, there is the Brexit deal itself. The UK has set out its desired trade relationship, though Brussels has so far not being receptive to these ideas and is mainly concerned that the UK is looking to “cherry pick” the best outcome for itself. If the EU continues to offer stern opposition to the UK vision, we are likely to see PM May stepping back further on key “red line” areas, as we have already seen with May suggesting that the UK might accept some ECJ rulings in Britain.

For both sides, it is incredibly important that a positive, progressive Brexit deal is agreed. Nearly half of British exports go to the EU and as the UK is projected to be the youngest and most populated nation in Europe over the next 25 years, access for EU firms will be a key priority.

In terms of the business outlook, investors have been encouraged by the agreement of a transitional period for the UK which has removed a large element of uncertainty from the landscape. Some say however, that the 21 month period agreed might still not be enough for UK businesses to adjust. Indeed, the threat of a “cliff edge” in 2020 remains a risk for firms.

Technical Perspective

For now, GBPUSD continues to trade within the bullish channel running from last year’s lows. Price remains firmly above the 1.3862 level post-Brexit low, and while above thus level focus will remain on a further upside run with the bullish channel top and Feb 2015 low around 1.4556 the next key level to watch.


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