Plus Plus Plus One

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Posted on January 2, 2018

The arrival of 2018 will see the next stage of  Brexit negotiations start as the agreement reached between the UK Government and the EU shows sufficient progress has been made on the three priorities: Northern Ireland, the Brexit divorce bill and the status of EU and UK nationals. Without a doubt, this next phase of ’trade’ talks will be the toughest part of the process. In reality, all of this will be put into the final negotiating deal, which is unlikely to be concluded by March 2019 when the UK will leave the EU. Even with a two-year transition, it is likely to take many more years to implement.

What does the UK want?

The UK wants to negotiate what has become known as ‘Canada plus plus plus’. The ‘Canada’ part refers to the  Canada-EU Comprehensive Economic and Trade Agreement (CETA), with the ‘plus plus plus’ referring to services rather than trade,  and the reduction of trade tariffs and non-tariff barriers. While  there is already alignment on the trade-in-goods side, no trade deal has yet existed that includes services. This is particularly important to the UK, with around 80 per cent of the UK’s economy in the services sector. One major part of this negotiation is financial services, which the UK Government will want to protect as much as possible. Prime Minister Theresa May will want to remain optimistic and retain a more positive tone with the EU from the December summit.

Achieving a wider agreement with the EU will be hugely challenging for the UK with both sides already drawing their red lines. The UK will want to replicate being in the single market/customs union without being in the single market/customs union, and the EU has already indicated that the UK cannot cherry pick what it wants. However, both sides, including the EU, will want to get on with a deal. The EU wants to be able to return to being the EU without the huge distraction of Brexit as does the UK, who is struggling with the day-to-day business of government given the amount of energy Brexit is taking up.

The UK Economy

While the UK economy is fairing better than expected, growth has slowed within the context of the uncertainty of where the Brexit negotiations will take the UK. Growth is unlikely be disastrous but will fall way behind the UK’s competitors, including within the Eurozone, which is predicted to grow at 2.25 per cent over anywhere between 0.5% and 1.5% in the UK. Business still are looking for clarity and, apart from reassuring noises from the government, it is unlikely there will be concrete proposals in the first half of 2018.

Possibilities for the UK Government

They are almost endless. Although the Prime Minister’s popularity has dropped by 50 per cent between June and December on her ability to deliver Brexit, she is still around. In the short term, it is unlikely that she will be stepping down. There are two reasons for her persistence as leader. Firstly, and most importantly, her strongest card is that if the government falls, the Labour Party under its leader Jeremy Corbyn stand a good chance of gaining power. The ultimatum for the Tories is to either support May or get Corbyn. Secondly, there is no obvious candidate in the divided Tory party to replace her. Her Brexit three – Johnson, Fox and Davis – are the unlikely successors, although Johnson probably remains convinced that it is his destiny to lead the party. All three are struggling with dissent within their Departments, whose civil servants are widely seen as working against them.  It has been difficult to demonstrate that the UK will be better off outside the EU. The PM has already lost three Ministers, including two who were forced to step down over sex/porn allegations and will therefore be under pressure to bring in some younger talent should she reshuffle cabinet.

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