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Brexit trade talks have been extended and economists at Standard Chartered still expect a deal to emerge, but no-deal risks are elevated. Leaving the single market and customs union could result in significant disruption to UK-EU trade.

Key quotes

“Given the strong economic incentives to avoid a no-deal outcome (particularly in light of COVID-19), a deal remains more likely in our view. However, negotiations could go right down to the wire; and given that the transition period ends in just over two weeks, there is no guarantee that ratification would be smooth sailing, particularly if UK and EU politicians want time to scrutinise the details.” 

“There are creative solutions available to deliver an expedited approval of any last-minute deal, and we would still not rule out a short extension of the transition period to avoid any major disruption on 1 January, but this will require sufficient political will on both sides, which is far from guaranteed.” 

“Whether a deal is agreed or not, a major change to the UK-EU trading relationship is coming. A deal would still result in the UK exiting the EU single market and customs union, creating new administrative burdens on both government and businesses.In a no-deal scenario, the impact would be even greater as UK firms would also face tariffs when exporting into the EU customs union. 

“The UK has said it will not impose border controls until July 2021 and it is possible the EU will reciprocate, creating a de facto implementation period for businesses; but this remains doubtful as the EU would likely impose additional costs on the UK.”