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James Smith, developed markets economist at ING, points out that within just three trading days of December’s UK election, the initial optimism about a smoother EU withdrawal quickly gave way to concern about the next stage of negotiations.

Key Quotes

“Investors are probably right to be cautious – 2020 has the potential to be another turbulent year for Brexit.”

“To recap, December’s election result, which saw Prime Minister Boris Johnson’s Conservatives gain an 80-seat majority, now virtually-guarantees ratification of the withdrawal agreement – the deal agreed between the UK and EU back in October. That means the UK will almost certainly leave the EU smoothly at the end of January.”

“But the discussions on the terms of future UK-EU trading arrangements have barely got started. Remember the withdrawal agreement covered mostly ‘exit issues’ – that’s things like the UK’s financial obligations, citizens’ rights, alongside a trading framework to avoid frictions along the Irish border.”

“The current direction of travel is towards a free-trade agreement between the UK and EU – but exactly what form that will take, and the length of time it will take to negotiate, are both still subject to change.”