Markets think some sort of Brexit deal will be done

Markets think some sort of Brexit deal will be done

Even though the clock is ticking down towards the UK’s exit date from the EU at the end of this month, Brexit remains as clear as mud.

We still have no idea if a deal will be agreed at the mid-October EU summit, if a deal would then be approved by the UK parliament, or whether the UK government will seek, as mandated by law, an extension to Article 50 in the event of no-deal.

Neither do we know if the UK could yet crash out of the EU without a deal, if not at end October, then soon after a UK general election that is expected to be held in November.

Last week was a terrible one for UK politics.

The government’s decision to prorogue parliament for five weeks was found to be unlawful by the Supreme Court.

This was followed by a fractious, bitter, partisan parliamentary session.

This is a minority government and getting majority support in parliament for a Brexit deal is going to be even more difficult after the events of the past week.

The impending election, rather than Brexit, seems to be to the forefront of UK politicians’ minds.

Sterling, though, remains within its recent 88p-89p range against the euro, even after hints last week from a Bank of England policymaker that UK rates could be cut soon.

The markets obviously think that a deal will eventually be done to achieve a soft Brexit.

The key to such a deal is that the UK wide backstop in the current withdrawal agreement moves to a Northern Ireland only backstop, but in a way that avoids putting a barrier down the Irish Sea to trade between Britain and the North.

There has been some movement in this regard.

All sides seem to agree that the regulatory regime for the agri-food industry could operate on an all-Ireland basis as there are already disease-control checks between Britain and the North in this regard.

Could this not be extended to some other manufacturing sectors in Northern Ireland that export into mainland Europe?

The main issue for the EU relates to the North being used as a backdoor into the single market for goods produced elsewhere, thereby avoiding EU customs duties and regulatory standards.

In this regard, exports from the Republic will still be able to travel through the UK landbridge route to mainland Europe after Brexit, without paying customs duties.

This will require certain documentation and goods moving in sealed containers.

Could something similar not be done for goods moving from Britain to the Republic via the North?

Any customs duties or checks may be able to be carried at a port in Britain or in Northern Ireland, obviating the need for checks at the Irish land border, as suggested in an article in the Financial Times last week.

Goods destined for the Northern market coming from Britain may be able to use a trusted trader or some other mechanism such as Vat tracking that would avoid the need for checks at ports.

Something along these lines, where the new checks between Britain and the North would only be required for goods in transit to the EU, could be the basis for a deal that the DUP and EU could agree to.

We have no idea, though, if this is the type of deal that the UK government is contemplating at the present time.

The real irony would be if an EU-UK deal that was broadly acceptable in Northern Ireland was blocked in Westminster.

Oliver Mangan is chief economist at AIB

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