The British economy has been pummeled by the pandemic. Now, after a meeting of EU leaders decided that not enough progress has been made in talks on a new trade deal with the United Kingdom, Johnson faces a difficult choice: Does he keep discussions going past a self-imposed deadline, or walk away?
Walking away empty handed would create disruptions to trade when the transition period ends later this year, shaving more than $25 billion off the UK economy in 2021 compared to a scenario where a limited free trade deal is agreed, according to a CNN Business analysis based on forecasts from Citi and the Institute for Fiscal Studies. That would put the country even further behind on its efforts to recover from the historic shock triggered by the pandemic.
“The combination of Covid-19 and the exit from the EU single market makes the UK outlook exceptionally uncertain,” Laurence Boone, chief economist at the Organization for Economic Cooperation and Development, said in a report this week. “Actions taken to address the pandemic and decisions made on future trading relationships will have a lasting impact on the United Kingdom’s economic trajectory for years to come.”
Little progress on deal
The clock is ticking for the United Kingdom and the European Union to come to terms, with Britain set to lose its favorable trading status with the bloc at the end of December.
Meetings this week concluded without any major breakthroughs. Fishing rights and the framework for resolving future disputes remain key sticking points, according to Mujtaba Rahman, managing director for Europe at Eurasia Group, a political risk consultancy.
“We don’t think the deal will flounder on fish, but we do think the technical and political challenges it presents will be more difficult to overcome than many believe,” Rahman said Thursday.
Johnson had said that terms of the future trading arrangement needed to be hammered out by mid-October to give businesses enough time to plan for the outcome. That deadline has now come and gone.
On Thursday, the European Union said it was willing to continue discussions in the coming weeks. But the United Kingdom’s chief negotiator, David Frost, said on Twitter that the conclusions of the EU Council left him “disappointed” and that Johnson would set out the UK position on Friday.
“As Johnson’s government tears itself apart on coronavirus, the need for a political win, which only a deal can be, is greater than ever,” he said.