PM's draft agreement is a positive step to avoid no-deal Brexit

By Conor Lambe, Chief Economist at Danske Bank

It was a long time coming, but after months of talks, UK and EU negotiators finally reached a draft Brexit withdrawal agreement on 14 November. And on Sunday, the European Council endorsed both the agreement and a political declaration setting out the high level framework for the future relationship between the UK and the EU.

The draft withdrawal agreement covers a number of areas including citizens’ rights, the UK’s financial settlement with the EU, separation issues, a transition period and the Northern Ireland backstop.

The backstop has been under much scrutiny throughout the UK but, as might be expected, there has been a particular focus on it here in Northern Ireland. Under this arrangement, the UK would remain in a single customs territory with the EU, while Northern Ireland specifically would continue to align with some EU rules, such as legislation relating to goods. This would mean that businesses in Northern Ireland would continue to be able to sell products in the rest of the UK and in the EU single market. However, goods moving from Great Britain to Northern Ireland would be subject to checks.

It is important to remember that the backstop is not the desired long-term solution to the border issue – it is really just an insurance policy. Both the UK and the EU have stated that they want to avoid a hard border in Northern Ireland over the long-term by reaching agreement on a new future relationship. In effect, the backstop is not meant to be used.

Whether this deal is good news or bad news has been the topic of public and political debate for much of the past two weeks. I’m not going to comment on the politics here, and of course everyone is entitled to their own personal views, but what follows is my opinion based on the economics.

I have always believed, and continue to believe, that Brexit will prove to be detrimental to the UK and Northern Ireland economies. Therefore the best that can be hoped for during the Brexit negotiations is to minimise the extent of the damage to the economy. The draft Brexit deal is not perfect, and there is still a considerable amount of work to do in the months and years ahead, but I consider the draft withdrawal agreement reached a couple of weeks ago to be a positive development in the Brexit process.

In arriving at this conclusion, there was one factor that impacted me more than any other. This deal, if approved, would avoid a no-deal Brexit and secure a transition period during which businesses could continue to trade in the way they do now.

A no-deal Brexit would be a disaster for the UK and the Northern Ireland economies. Businesses would face uncertainty at a level far beyond anything experienced since the UK voted to leave the EU two and a half years ago. Difficulties could, quite literally, arise overnight with regards to selling products in the EU, bringing in the inputs necessary to keep manufacturing goods, providing services to EU businesses and recruiting EU nationals.

The transition period that this agreement would deliver would mean that businesses would not face the challenges that a no-deal outcome would result in come the end of March next year. Negotiators from both the UK and the EU would also have the time and space they need to agree a new, long-term relationship. This can only be viewed in one way – positively.

In the weeks ahead, the UK Parliament will vote on whether to approve this deal. At present, there is considerable uncertainty around the outcome of that vote. If the House of Commons were to reject the deal, that could result in the UK leaving the EU without a withdrawal agreement. A no-deal Brexit is, unfortunately, still a possibility.

That being the case, businesses must not take their foot off the gas when it comes to their Brexit planning. They should continue to assess the potential impacts that Brexit could have on them and prepare appropriate contingency plans. The bottom line is that businesses need to be prepared for the UK leaving the EU on 29 March 2019, whether that is with a deal or without.

The coming days and weeks will likely prove to be a crucial period in the Brexit process. Uncertainty continues to persist and it is extremely difficult to predict what will happen in the House of Commons. But through all the uncertainty and the haze one thing remains clear – a no-deal Brexit simply must be avoided.

This article was published in the Belfast Telegraph on 27th November 2018.