Brexit ‘is not yet done’ and could still cost UK: S&P

Brexit has not yet been done despite Britain formally leaving the EU tonight and negotiations could yet mean it will lose out on “large-scale” investments, S&P Global Ratings has said.

Both the UK and the EU will work towards striking a comprehensive agreement but may instead agree on sector-by-sector deals by the year-end deadline, which would likely not include financial services, the ratings firm said in its bulletin, called Complexities Ahead As United Kingdom Steps Into A Brave New World.

“Arguably, the past three-and-a-half years have been the easy part, despite all the political wrangling,” said Aarti Sakhuja, an S&P Global Ratings credit analyst. “The focus now shifts to trade talks, which the UK government is keen to conclude before the end of the year.”

S&P said that “smaller, sectoral deals” would not add up to a “comprehensive or permanent” deal.

“Without comprehensive permanent agreements, companies may shy away from large-scale investments in the UK,” it said.

“Westminster wants growth and it aims to be able to diverge from EU standards so that it is free to negotiate trade pacts with other countries and trading blocs,” said Ms Sakhuja said. “There is a trade-off, however.

The further the UK diverges from EU regulations, the higher the costs of trading with the bloc will be.

Meanwhile, a leading think tank in Germany, Ifo, urged the UK to lift its deadline and give more time for the talks to conclude. Prime Minister Boris Johnson insists there will be no extension to the UK-imposed deadline.

“All the indications are that it will be extremely difficult to reach an agreement within 11 months. Consequently, if it will take one or two more years to work out a free trade agreement, the UK government should abandon its plan to end the transition period at the end of 2020,” Ifo president Clemens Fuest said.

“There is a risk that protectionist groups on both sides could abuse the level playing field issue to undermine the free trade agreement,” he said, citing EU concerns the UK will seek to get tax breaks for its companies.