Trade Talks At Risk
The outlook for the UK economy looks to be worsening with UK newspapers reporting a warning from Downing Street sources that the UK is close to giving up on trade talks with the EU.
The UK and EU are currently in a set of negotiations aimed at delivering a trade deal between the two economies which will come into effect once the Brexit transition period expires on December 31st. While the UK legally has up until that point to agree terms with the EU, UK PM Boris Johnson has said that he wants the broad outline for a deal to be in place by the end of the month or is prepared to exit talks.
While many across the political divide in the UK have called on the need for more time to be granted, Johnson has remained adamant in insisting that the transition period will not be extended and the UK will leave the customs union on December 31st with or without a deal.
The Daily Telegraph reported a senior government source saying: ‘The Government has been making it clear for a while now that it is prepared for no deal. Britain isn’t going to budge on fundamentals like fishing rights, so it’s all in the hands of the EU.’
Negotiators from the UK and the EU have been engaged in face to face, weekly meetings, rotating between Brussels and London over recent weeks. While these talks are said to have been constructive, reports highlight that the two sides remain firmly divided over many key issues.
UK Firms Unprepared For No Deal
Fears over the economic impact of a no-deal end to the Brexit transition period were heightened this week in response to a report from Institute for Government which said that many UK firms were unprepared for such an outcome. In its report, the IfG said that 60% of firms had not made any preparations for a no-deal Brexit given the pandemic. IfG said: Since the pandemic took hold in February, and with the formal lockdown taking effect in late March, government and business resources have been focused on responding to the pandemic, rightly prioritising this over Brexit preparations.
‘Firms reeling from the economic consequences of coronavirus are poorly placed to prepare for Brexit: in many cases, in a worse position than in the months leading up to the potential no deal in October 2019.’
Should UK PM follow through on threats to abandon trade talks early if no deal outline is achieved, this will create strong headwinds for GBP, raising tail risks into the year end, creating further pressure on the BOE.
EURGBP ( Bearish below .9097)
From a technical viewpoint. Following a downside break of the rising trend line from year to date lows, EURGBP has tried to reclaim upside ground but failed at a test of the .9097 level which is still capping the pair here. Though still above the 50dma for now, the RSI is showing bearish divergence and while .9097 holds, risks of a reversal lower are building. If price does reverse here, .8861 is the first structural support level to watch.
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