UK likely to continue trade talks with EU past Boris Johnson’s deadline

The deadlock continues with the British government deriding the EU for its stance on fisheries and the EU calling for the UK to cede ground in other key areas such as business subsidies.

File image of British Union flag and the European Union (EU) flag outside the Houses of Parliament in London | Photo: Luke MacGregor | Bloomberg

The U.K. is likely to continue trade talks with the European Union beyond Boris Johnson’s deadline of Oct. 15 as long as the bloc’s leaders signal they are prepared to make a final push.

The prime minister will decide whether to carry on or walk away from negotiations after a meeting of EU leaders on Thursday and Friday, according to a person close to the discussions. Johnson is likely to be told by his advisers that an accord is possible if officials can begin intensive talks in coming days. The pound rebounded from a one-week low.

Both sides now consider the end of October or first few days of November as the real deadline for getting a deal, people familiar with the negotiations said. The U.K. will leave the bloc’s single market and customs union with or without a deal when the 11-month transition period expires on Dec. 31 — but any agreement has to be approved by the British and European parliaments before then.

While the rhetoric has heated up this week, with the British government deriding the EU for its hard-line stance on fisheries and the EU calling for the U.K. to cede ground in other key areas such as business subsidies, there has been little progress around the negotiating table as each waits for the other to blink.

Efforts to break the deadlock are set to continue on Wednesday evening when Johnson, European Commission President Ursula von der Leyen, and European Council President Charles Michel discuss the situation on a video call. The prime minister previously said he would walk away from the negotiations if there was no clear progress by Thursday.

Crunch time

At the two-day meeting in Brussels, the 27 EU leaders will say that “progress on the key issues of interest to the union is still not sufficient for an agreement to be reached,” according to draft conclusions seen by Bloomberg. They will also increase preparations for a no-deal split.

One of the key obstacles to a deal remains what access EU boats will have to U.K. fishing waters. France is seeking the same rights it enjoys today under the EU’s Common Fisheries Policy — something the British government has rejected.

The EU says that before it can contemplate making any compromises on fish, the U.K. has to offer concessions on the so-called level playing field for business, including setting out what its state-aid policy will be. The bloc is anxious to prevent British firms from gaining an unfair advantage over their European competitors.

Leaving without a deal would deal a significant blow to the British economy. Near-term, it could deliver a shock equivalent to about 1.5% of gross domestic product and leave the U.K. economy’s annual potential growth rate 0.2 percentage points lower in the future, according to Bloomberg Economics’ Dan Hanson.

That hit would heap further pain on an economy that’s already suffered its biggest-ever quarterly contraction in the midst of its coronavirus lockdown and now faces a second wave of restrictions that threaten to choke off its sluggish recovery. It may also prove the catalyst for the Bank of England to cut interest rates below zero for the first time, a step officials are already operationally discussing with banks.

A no deal scenario would prove “a further set back to the recovery from the Covid-19 crisis,” Hanson wrote. “With the economy’s ability to grow impaired, the gap between the economy’s path with and without a trade deal would continue to widen over time.”-Bloomberg