UK tipped to strike ‘piecemeal’ EU trade deal

Brexit uncertainty will likely continue to weigh on the British economy but “the handbrake” on growth may come off if the UK strikes some sort of interim trade deal this year, a leading London consultancy has forecast.

Capital Economics said the risk of Britain reverting to World Trade Organisation rules which a no-deal outcome at the end of 2020 entails remains a live issue, but some sort of “piecemeal deal” is likely nonetheless.

“Some sort of fudge that prevents a step-change in the UK-EU relationship at the end of this year is more likely,” said its chief UK economist Paul Dales in a major assessment — What to expect as the UK negotiates its future relationships.

“A piecemeal approach could involve deals in some areas [such as goods] being agreed this year and the status quo being maintained in others [services] until deals can be sorted after 2020,” he said.

The UK and EU must resolve three trade-offs in the coming months, including the amount of access to the single market and the rules the UK must obey, as well as the shape an eventual UK-US trade deal will take, according to Capital Economics.

It believes the UK and the EU will aim to strike a so-called “Canada plus, plus” deal. “If the UK wanted a relationship as close as full EU membership or as distant as operating on WTO terms, that could be arranged very quickly. But something like Canada, plus, plus will be harder and will take longer. This tight timetable may force the UK to give up some ground,” it said.

Capital Economics projects a piecemeal deal would help remove the threat of a no-deal outcome on December 31 and help the UK to boost GDP growth to 1.8% in 2021.