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City AM: The prospects of the UK quitting the EU without a trade deal are rising, not falling

Date: 01 02 2017

The prospects of the UK quitting the EU without a trade deal are rising, not falling

With all the bluster of the Supreme Court ruling on Article 50 and now the drama of the European Union Bill going through Parliament, many businesses have been diverted from the more pressing issue – that Brexit could happen much sooner than March 2019 – it could even happen before 2017 is out.

When the British people voted to leave the EU in June last year, it caused catastrophic damage to the future of the European project. Leaving the EU had now seemed a real possibility in many other member states – Denmark, the Netherlands, Italy, and even France witnessed a remarkable surge in Eurosceptic support.

Brexit and potential Dexit, Nexit, Itexit or Frexit have both frightened and angered the Germans – the principle enforcer of the EU project and chief beneficiaries of it.

They remain committed to a borderless empire with a common currency protected by a European army. The last thing Germany wants is for other EU states to follow the example of the Brits and see the number of member states dwindle further.

Given the German’s fear of the EU project collapsing, there is every chance that they will try to stall negotiations with Britain – despite it being in Germany’s best interests to negotiate a free or very low) tariff deal with Britain, one of their top three export markets.

In her Lancaster House speech on Brexit, the Prime Minister echoed the core mantra of the Leave Means Leave campaign – ‘no deal is better than a bad deal’. She made it clear that if negotiations with the EU are fruitless, Britain will walk away from the table and revert to WTO rules.

The prospect of securing trade deals with the rest of the world is looking increasingly promising. The Prime Minister’s visit to the United States to meet President Trump has been a huge success and negotiating a swift trade deal with the US is looking almost certain.

The British Government can see the huge benefits of a Britain outside of the EU and will not want to put the opportunity to secure trade deals with non-EU countries on ice because of the dawdling EU.

Mrs May’s pledge that ‘no deal is better than a bad deal’ with the EU was bold. As relations with other global leaders like President Trump blossom, expect the Government to get much bolder in negotiations with the EU.

In summary, the chances of Britain reverting to WTO rules without an EU deal are rising fast. Businesses and commentators must anticipate this as the base case scenario, not the unlikely downside result.

 February 2017: City AM