What May Happen After The Brexit Deadline On 31st January 2020?

Background of Brexit

On 23^rd June 2016, a referendum was held to decide whether or not the United Kingdom should continue to be a part of the European Union. The majority of the people who voted were in favour of the stance that the United Kingdom should quit being a member of the European Union. This process was given the colloquial name called “Brexit” (Britain’s Exit). In March 2017, the then Prime Minister of England, Theresa May, triggered the article 50, which led to the beginning of the formal two-year process of United Kingdom’s exit of the European Union. The date of the formal exit was first set on 29^th March 2019 and had last been extended to 31 January 2020. Within this period, the economy of the United Kingdom suffered some of the biggest setbacks, primarily because businesses were uncertain about the kind of trade environment there would be post-Brexit. Another consequence was the fact that consumers reduced their spending to bare minimum, which led to an economic crisis like situation, which has been continuing in the present time as well.

This period also saw a political Turmoil in the United Kingdom, as, Conservatives, who were in Power, did not have a clear majority in the Parliament to pass the Brexit Bill unopposed, and hence were being targeted by the opposition on not being able to get Brexit done. In March 2019, the government asked permission from the EU Council, to extend the deadline to 30^th June. This deadline extension was granted, but negotiations were still unsuccessful regarding any trade deals as well as other border deals. This led to a further setback, and Theresa May had to resign as the Prime Minister on account of not getting Brexit Done. Boris Johnson later was appointed as the Prime Minister and set another deadline of 31^st October 2019. This deadline was later extended to 31^st January 2020, as negotiations both inside the parliament as well as with the European Council could not be successfully completed. Later, Boris Johnson announced a snap election in December 2019, following which the conservative party won with a clear majority, with the help of which, they could pass the Brexit Bill with the deal that was made with the European Council. Now, at the time of writing, the Brexit deadline is just two days away, so here’s a brief outlook on what the UK economic, political, business and stock market scenario look like following Brexit.

Key dates in the timeline of Brexit

January 31, 2020

Brexit day - With the new Parliament majority won in the latest general elections held in the month of December, the United Kingdom administration is on its path for a successful arrangement of the Brexit deal by the end of January, preparing for Britain's exit from being the member of the Union following 47 years of association. The arrangement will also have to obtain the approval in the European Council, where the passing of the ratification looks almost certain.

March 1, 2020

Prior to the end of 2020, when Britain's post-Brexit transition phase is expected to be finished, the two parties are vying for a swift future-relationship beginning soon after the Britain’s exit from the European Union. The transition phase is meant for preserving all the benefits it was deriving out of the union’s internal market while it won’t be having it’s representation in the bloc’s institutions or be having a decision-makers role.

June 2020

An EU-UK political declaration, agreed as part of Mr Johnson’s Brexit deal, states that a conference might take place in the month of June so that the United Kingdom and rest of the EU can gauge the progress of the talks.

November 26, 2020

The European Union Council has stated that the economic accord must be confirmed, checked, and interpreted to the European Parliament by the previously agreed date for the purpose of finishing it toward the year-end as hitherto mentioned and agreed between the two parties.

December 31, 2020

This is the final date of the transition period, which could be extended by the British Government, with the prior approval of the EU Council, but if a trade deal is not in place, then United Kingdom will have to go back to basic World Trade Organization terms, meaning tariffs on products and services made in the country, which will hamper UK’s businesses and little practical co-operation to smooth border checks would be provided from other countries.

Geopolitical Outlook post UK’s formal exit

The main geographical concern around Brexit previously was the Irish Backstop border scenario. Boris Johnson, in a deal agreed, has taken a unique approach, which focuses more on getting away with the Irish backstop that will kick in by the end of the transition period that has been set in December 2020, in favour of a new border policy for the borders around Northern Ireland.

The new Irish Protocol looks to set out not a mere backstop that will fall away when different courses of actions can be presented to convey an imperceptible border in Ireland, rather an altogether new future for Northern Ireland.

There are some regulatory as well as legislative changes in transition as well. If we talk about the chemical industry in particular, UK businesses have invested capitals worth hundreds of millions of pounds to register and apply for the authorisation of chemicals to verify their accessibility on the EU market. Some type of continuation in the membership of the European Chemicals Agency is indispensable to limit interruption. In March 2018, the previous UK head Theresa May stated that her administration was focused on looking for participation of European Chemicals Agency, yet Mr Johnson appears to have relinquished the thought. In terms of Legislation, The United Kingdom has been caught up with planning statutory instruments for national laws that, in a no-deal scenario, would reverberate a few EU guidelines concerning chemicals and synthetic products that are directed by the European Chemicals Council. These include - the classification, labelling and packaging (CLP) Regulation, the earlier informed consent Regulation as well as the biocidal products Regulation.

Economic Implications after Brexit

Various research agencies and institutes have conducted research using different methodologies to identify the economic implications post-Brexit, and the ways in which the future conditions could improve or worsen. All these studies have primarily found that the United Kingdom economy is on its path towards a further downturn post Brexit. This is mainly due to the fact that Consumer spending is not expected to better in the period after Brexit because the uncertainty around the deal that has been agreed by the Johnson Government with their European Counterparts will continue to exist. Adding to this, the continued poor performance of the retail sector in the last year and a half will still be there on a cost basis for these companies, spearheaded by high rent costs, which is not going anywhere anytime soon.

Businesses have not attracted a lot of capital, by both lending, due to high lending rates, and through stock market money raising, which was at its lowest in the year 2019. This is because international institutional investors are still unclear on how things post-Brexit will pan out.

Another important thing to gauge in the coming days would be if UK can successfully complete the transition phase with the EU by the end of the year because in a no-deal scenario, the standard WTO trade rules will start applying to the UK. The examination of the specific situation of UK being under the WTO norms shows that trading under WTO rules would lessen future GDP by around five per cent in the ten years post-Brexit, or US $140 billion, compared to if the partnership with the European Union would have been continued for the next 10 years.

Productivity in the long term is crucial for economic growth and becoming more productive means that workers can produce increasingly large quantities of output without needing any more capital to work with. This is key to enabling rising living standards, while the economists are still guessing why UK productivity growth has been so poor in recent years, making it difficult to predict with any certainty how it might change in future. Economic theory suggests that trade can boost productivity, but the size of this effect is difficult to estimate, and the empirical evidence on this question is mixed.

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