Britain’s hopes of securing a free trade deal with the EU are still in the balance and there is about a 40 percent chance of a “no-deal” scenario, according to Western Union’s senior currency strategist Nawaz Ali.
“UK-EU trade negotiations will likely run down to the wire yet again, and it’s still hard to judge the UK government’s true negotiating position,” he said.
“The hope is there will be a limited free-trade deal in December that maintains tariff-free and quota-free trade with Europe, and minimal non-tariff barriers. I think UK businesses would accept that outcome now.
“However, there is still about a 40 percent chance of a no trade deal outcome, meaning each firms’ supply chain resilience will be tested even further this year. A British cereal manufacturer, for example, could face complicated non-tariff barriers on top of regular tariffs of 14.9 percent.”
Ali’s comments come as Western Union released their report, “Are you ready for 2021?” which looks at the major issues likely to affect currency volatility and scenario planning in the year ahead.
In it, UK currency strategist George Vessey highlights that building trade deals globally is a significant benefit of Brexit and securing a trade deal with the US may greatly benefit some sectors. However, the EU accounts for almost 50 percent of the UK’s total trade and the longer negotiations go on, the more likely it is that UK businesses will incur large costs to protect themselves from a “disruptive” no-deal scenario.
While the UK has already left the EU, the transition period comes to an end on December 31, 2020. As of yet, no trade deal has been agreed despite UK Prime Minister Boris Johnson setting a deadline for a deal as October 15 so that no-deal preparations could be made.
Fears over second lockdown
The report also warns that should coronavirus-enforced lockdown measures be extended across the UK and world more generally into Q4, any hopes of the V-shaped recovery will “dwindle”. However, a quick rebound holds the key to long-term prospects and if a second lockdown is avoided, and growth at least returns to trend in the next six to twelve months, then this should ease the pressure on firms throughout the country.
“The original assumptions were for the Great Lockdown to ease in Q4, and the economy to bounce back very strongly going into 2021,” Ali said.
“ Unfortunately, according to Q3 data the probability of stricter lockdowns and a second wave of infections rose from 35 percent to 40 percent. Many UK businesses are already facing this scenario now.
“The longer restrictive measures are needed, the more pressure will increase on many firms to streamline operations and their cost base. At the front end, they’ve also got to revolutionise their sales strategy to compete in the ‘new normal environment’.”
To find out more about how you can prepare your business for 2021, download Western Union’s report here