The United Kingdom and the European Union have agreed on a trade deal, closing the book on more than four years of uncertainty over how the country would conduct business with its biggest export market following Brexit.
«The United Kingdom has chosen to leave the European Union and the single market, to renounce the benefits and advantages held by member states,» EU chief negotiator Michel Barnier told reporters. «Our agreement does not reproduce these rights and benefits, and therefore despite this agreement there will be real changes in a few days from now.» The new relationship is expected to lead to a long-run loss of output of around 4% compared to remaining in the European Union, according to the UK Office for Budget Responsibility, which produces economic forecasts for the government. Leaving the EU’s single market and customs area means higher costs for UK companies, which could lead to higher consumer prices and even more job losses, as well as reduced export prospects, economists say. Another drawback: The deal appears to mostly cover trade in goods, where the United Kingdom has a deficit with its EU neighbors, and excludes key service industries like finance, where it currently enjoys a surplus. «The good news is that a disruptive and acrimonious ‘no deal’ has been avoided,» JPMorgan’s Malcolm Barr wrote in a research note Thursday before the deal was finalized. «The bad news for the UK, in our view, is that the EU appears to have secured a deal which allows it to retain nearly all of the advantages it derives from its trading relationship with the UK, while giving it the ability to use regulatory structures to cherry pick among the sectors where the UK had previously enjoyed advantages in the trading relationship.» Here are some of the major challenges facing the battered UK economy when the Brexit transition ends on Jan.1. Trade barriers UK companies are losing unfettered access to the European Union. While a deal means that exporters have been spared the pain of having costly tariffs slapped on their goods, new import and export declarations alone will cost UK companies £7.5 billion ($10.3 billion) annually, according to Britain’s revenue authority. Costs will rise rapidly if new customs checks delay goods at the border and snarl supply chains, forcing factories to pause production. UK ports are already gridlocked, partly as a result of stockpiling ahead of Brexit, with industry groups representing retailers and food producers warning that pressure will only increase when the transition period ends. Even before France abruptly closed the border following a warning from UK officials of a new, more infectious coronavirus variant, Honda was forced to halt production at a major plant in England for three days in December because it couldn’t get the parts it needed.
