- by William DE VIJLDERUK’s historic vote to leave the European Union is now likely to be followed by a long process of negotiating the exit and the new relationship.
- Within the Conservative party speculation over a change of leadership will probably now mount.
- With Scotland’s electorate having expressed a desire to remain in the EU there is a possibility for calls for a second Scottish independence referendum.
- Uncertainty over the future UK-EU relationship and the UK political outlook will weigh on the economy. We expect it to stagnate over the next two to three quarters. Overall, we expect the level of GDP in 2018 to be almost 2% lower than previously forecast.
- Sterling is expected to weaken which will put upward pressure on inflation. We see CPI inflation at 2.6% in 2018, against our previous 2.0% forecast.
- We expect the Bank of England to ease policy cutting the Bank rate to zero and upping asset purchases (QE) by GBP 100 bn.
The start of a long process
UK’s historic vote to leave the European Union will now in all likelihood lead to negotiations about the exit and the new relationship with the EU. We expect the process of leaving the EU to be protracted. The first step is for the UK government to notify the European Council of its intention to withdraw. We think it is unlikely that this notification will happen before the end of 2016. When it does it triggers negotiations for a withdrawal agreement, with a firm two-year deadline, after which European rules (or at least some of them) no longer automatically apply. Until that point, the UK remains bound by EU law.
Negotiating a withdrawal agreement in the following two-year window looks challenging, in light of the substantial trade ties between the UK and EU, the breadth of EU-related UK legislation that has built up over 40 years of membership and the substantial numbers of EU citizens resident in the UK and vice versa whose status must be decided. If the UK were to opt to join the European Economic Area (EEA), this could be implemented more quickly than a bespoke agreement. However, EEA membership means the UK would have to apply European laws relating to the Single Market, continue to pay a contribution to the EU budget (albeit a reduced one) and accept free movement of labour for EU citizens. If EEA membership proves not to be a viable (long-term) option, one of the most difficult and economically important areas to address will be the UK’s future trading relationship with the EU and its member states. There is also the need to forge trade deals with over 50 non-EU countries that the UK currently trades with on the basis of agreements signed by the EU. Trade negotiations are typically long processes.
To read the entire report Please click on the pdf File Below
by William DE VIJLDER