What’s happening? The U.K. says suspending parts of the post-Brexit trade deal is “very much on the table,” and Britain tweaks the math to improve the outlook for an agreement with Australia.
The European Union is preparing a package of retaliatory measures in case the U.K. triggers Article 16 of the Northern Ireland protocol — the part of the Brexit deal that pertains to the region. The stakes couldn’t be higher.
If the conflict is mishandled, it could stoke sectarian tensions in Northern Ireland and demolish the hard-fought trade agreement the EU and U.K. signed last year. That could put Prime Minister Boris Johnson’s government back on track for what would effectively be a “no-deal” Brexit.
The Irish Prime Minister said that would be “reckless and irresponsible,” and his country is preparing for a possible EU-U.K. trade war. U.K. Brexit minister David Frost will discuss the issue in London on Friday with the EU’s Brexit negotiator, Maros Sefcovic, who has said this week would be “an important one.” But Northern Ireland’s agriculture minister, the former Democratic Unionist Party leader Edwin Poots, said triggering Article 16 would leave the region better off by reducing the number of checks on goods entering it. His words have been interpreted as an attempt to egg on Downing Street to act.
There’s better news on the Anglo-French dispute over fish. France praised the latest round of talks with the U.K. over fishing licenses, but a compromise has yet to be reached. Johnson’s spokesman said the U.K. wouldn’t be changing its approach to the evidence requirements that French boat owners must present to get permission to fish in U.K. waters. French President Emmanuel Macron proposed an alternative methodology for what would constitute adequate evidence, a proposal the U.K. is considering.
The EU is set to extend a temporary waiver that allows its banks and money managers to clear trades in the U.K., before it expires in June. That would lift a looming threat to one of the City of London’s crown jewels. The EU has been pushing for more financial activity to move into the bloc, but decided that the existing timeframe was too short.
As part of a push to overhaul the financial industry after Brexit, British regulators will be granted greater flexibility to update laws inherited from the EU. The Treasury’s Financial Services Future Regulatory Framework Review proposes giving the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority the powers to replace EU rules with new ones that are more closely tailored to the U.K. market. It would shore up the regulatory framework for financial intuitions in the U.K. after the issue was left out of the trade deal with the bloc. In practice, the Treasury said the proposals wouldn’t result in sweeping regulatory changes.
That flexibility could be blunted by post-Brexit trade agreements with other countries. The Treasury also proposed that the FCA and BOE’s PRA “assess whether the exercise of their powers to set rules and approaches on supervision is in compliance with the U.K.’s obligations under our trade agreements.” Again, the Treasury denied that regulatory standards would be weakened, but the U.K. government has long held a trade deal with Washington as a post-Brexit goal, and U.S. financial regulations are less stringent than the EU ones that the U.K. currently uses.
Despite spending more than 1 billion pounds ($1.4 billion) on measures to smooth the passage of goods over the border, Britain’s trade with the EU fell 15% in the second quarter of this year compared to the same period in 2018, according to the National Audit Office. Johnson has repeatedly argued that gaining total trade freedom would be more valuable than remaining close to the bloc, since it enables the U.K. to pursue other global opportunities. But the NAO said in the same period, Britain’s trade with the rest of the world rose just 1%.
Since Brexit was completed in January last year, Britain has yet to deliver a trade agreement with a nation that wasn’t covered by deals with the EU. Faced with the unpalatable conclusion that the U.K.’s free-trade deal with Australia would do more further harm to Northern Ireland, Johnson’s officials tweaked the math. The result is the government’s yet-to-be published analysis of the accord will now show a positive impact, a person familiar with the matter told Bloomberg.
Chart of the Week
The U.K. economy grew less in the third quarter than the Bank of England forecast, and consumer spending showed signs of weakening. That’s according to figures from the Office for National Statistics that leave the chances of an interest-rate increase in December in the balance. Separate ONS figures showed the trade deficit excluding precious metals widened to almost 40 billion pounds ($54 billion) in the third quarter. For the ninth straight month, imports from non-EU countries exceeded those from the bloc, with the gap between the two increasing to its widest this year. Ana Boata, head of economic research at trade credit insurer Euler Hermes, said: “U.K. exporters face a difficult winter ahead as supply disruption shows little sign of easing, with profits squeezed as a result.”
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