EC president Jean-Claude Juncker is not the only one to warn that difficult times lie ahead for the Brexit talks. Moody’s Investors Service said in a new report:
The agreement in principle on the terms of the UK’s withdrawal from the European Union is positive to the extent further delays would have reduced the time available to avert a “no- deal” scenario on 29 March 2019… However, the forthcoming trade talks will likely be difficult and there is a significant possibility of further deadlocks before a final agreement is reached.
“The broad agreement between the EU and UK allows talks to start in early-2018 on arrangements during the transition period,” said Colin Ellis, a Moody’s Managing Director and co-author of the report. “However, the agreement between the EU and the UK on ‘phase one’ withdrawal issues does not actually resolve many details, for instance around the Irish border, and nor does it imply that future discussions will go smoothly. It’s primarily a political device to allow talks to progress.”
The risk of further deadlocks in talks is substantial and the uncertainty concerning the terms of UK’s future long-term relationship with the EU will prevail beyond a transition deal until a conclusive final agreement is reached. This will continue to hamper corporate investment and curtail the operating environment for UK issuers, particularly for those which are highly regulated by EU frameworks.
The initiation of talks on transitional arrangements in early-2018 is consistent with Moody’s base case of a manageable impact of Brexit for rated UK companies, given that further delays would have reduced the time available to avert a “no-deal” scenario.
As outlined previously, if there is no deal, Moody’s would likely see disruptions to trade and a further fall in sterling, which would severely affect sectors that are heavily dependent on imports and goods flows from and with the EU, including food retailers and ports, highly regulated by current EU frameworks, in particular the UK airport and aviation sector.
The uncertainties over the outlook have helped push sterling even lower. The pound is currently down 0.63% against the dollar at $1.3348. The FTSE 100 is benefitting from the fall in sterling, up 0.23% at 7465.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back on Monday.