Brexit: not the final frontier. What happens if a deal is reached … and what happens if it isn’t

Economic commentary

Key points

• It is still HSBC’s view that the UK and the EU will reach a limited agreement, as regards their future trading relationship, before the Brexit transition period ends on 31 December. But it will not be a comprehensive settlement, with negotiations on many issues likely to continue for months or years.

• The risk of a ‘no-deal’ outcome has risen over the past few weeks, especially after the presentation to Parliament of the Internal Market Bill, which by the UK Government’s own admission will breach its obligations under the withdrawal agreement. The pound has already fallen, as the foreign exchange markets price a higher probability that no agreement will be reached on the ongoing relationship.

• A shift to trading with the EU on WTO terms, with no special arrangements for sectors such as haulage, aviation, and banking, would present businesses with additional headaches at a time when they’re already struggling with the Covid crisis. And in such a scenario, economic growth during 2021 would be slower than might otherwise have been the case, with the post-Covid recovery process taking longer. The Bank of England is expected to respond with a further cut in interest rates and an expansion of quantitative easing.