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Analysis

Dangers of cliff-edge EU exit too great

Majority promote prospect of some transitional agreement

This month’s advisers network poll focuses on the state of the negotiations between Britain and the European Union on the UK’s exit from the bloc. Members of the network were asked: ‘What is the most likely outcome of the next round of Brexit talks?’ The choices included were: a ‘cliff-edge exit’ in March 2019, when negotiations are scheduled to end; a transitional period running to 2021; a transitional period of three to four years after 2019; Britain remains in the EU; or another scenario.

More than two-thirds of respondents are confident a transitional period of some sort will be agreed, split almost equally between the likelihood of a two-year period running after March 2019 and a slightly extended period. 13% believe the UK will leave the EU at the end of the negotiating period without a suitable agreement in place; but a corresponding proportion of respondents argue Britain will ultimately stay in the union.

Other members of the network suggest the negotiations will, by one means or another, be extended beyond March 2019. Still more pessimistic respondents argue the British negotiating team will fail to deliver a deal which is sufficient to bind future governments. The next general election is scheduled for 2022, though may occur sooner in the event of a vote of no confidence or two-thirds majority vote in the legislature to dissolve parliament. An early election seems increasingly probable in the light of seemingly ever-present leadership challenges in the Conservative party.

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‘At the end of the day a transition period running to 2021 is most probable. The economic and political risks of other options for either one or both parties are simply too big to be credible.’
Laurens Jan Brinkhorst, University of Leiden

‘I believe at the end of March 2019 some arrangement in allowing the parties “to kick the can ahead” will be found. But it will not be too productive.’
Miroslav Singer, Generali CEE Holding

‘A transition period lasting three or four years would make Brexit the defining theme of the next general election. This would make a Remain situation possible, given the of flexibility on the legal issue of a “non-consummated exit”.’
Olivier Rousseau, Fonds de réserve pour les retraites

‘I imagine there will be a three- or four-year transition period, but the road to this point will be a volatile one. There will be increasing pressure on UK negotiators as it becomes apparent that important long-term corporate investors are looking to hedge their position by increasing exposure into Europe in key sectors such as financial services and manufacturing.’
Mark Burgess, Jamieson Coote Bonds

‘The current extremism, on both sides, is the enemy of compromise. More time is imperative to find a middle ground.’
David Smith, formerly United Nations

‘There will be a cliff-edge exit papered over with individual fudged agreements in selected limited areas. The problem will be getting the 27 remaining members of the EU to agree on details.’
Brian Reading, independent economist

‘The EU, the financial markets and the corporate sector can see that the British do not have a strong enough government to negotiate with, namely one that can deliver a deal which will commit future parliaments are one which future governments will abide by. The UK is heading for a steady erosion of financial sector business from London over the next several months. At some point this confusion and uncertainty will trigger a collapse in confidence in the British government and in sterling well before March 2019.’
Stewart Fleming, University of Oxford

December’s question

Assets globally have benefited from a strong bull market in 2017.
When will markets see a correction and what will be the cause?