UK negotiators will likely face pressure on the home front – Standard Chartered

Research Team at Standard Chartered expects that in addition to dealing with EU-27 priorities, UK negotiators will likely face pressure on the home front.

Key Quotes

“Several domestic factors could influence both the UK government’s negotiating authority and the post-Brexit impact of the divorce:

1. The Great Repeal Bill. This bill aims to place EU law onto the UK statute book in its entirety, in order to avoid a legal vacuum after Brexit. But a large number of laws would need to be amended within a short, two-year timeframe. The bill would, via delegated powers, allow ministers to amend or repeal large amounts of legislation without much scrutiny by parliament. Handing over power in this way could be controversial, especially if parliament believes that ministers are going beyond their remit and making deep changes to policy.

2. Scotland and Northern Ireland (NI). Support for Scottish independence may gain traction if Brexit talks are painful. PM May has rejected a request for a Scottish independence referendum before Brexit, but Westminster’s authority will be challenged if Brexit is perceived as damaging Scotland’s interests. 

NI represents an enormous challenge to the Brexit process, as the Good Friday Agreement ensured porous borders between NI and the Irish Republic, and the right of NI citizens to hold British and Irish citizenship is enshrined in the agreement. The main unionist and republican parties are struggling to find common ground following elections that saw the nationalist Sinn Fein nearly overtake unionists as the largest party; a new election may have to be called. Sinn Fein’s success will encourage the party to demand “special status” for NI in the EU, re-igniting discussion of a ‘border poll’ on reuniting Ireland, though for now, support in NI for reunification is low.

3. The economy. The economy has fared better than expected since the Brexit referendum, but inflation is spiking and there are signs that growth momentum is fading – quarterly GDP growth releases will likely punctuate the Brexit negotiations. Balance-of-payment releases will also be of interest, indicating how far the weaker British pound (GBP) is helping exports and investment income, and whether inward foreign direct investment is being discouraged by Brexit.”

“Bank of England (BoE) quarterly Inflation Report forecasts will outline whether the BoE is ready to withdraw policy accommodation; a chaotic Brexit raises the likelihood of policy staying on prolonged hold, in our view. If the recent slowdown in EU immigration persists, challenges for businesses and policy makers could grow, undermining the narrative behind the government’s ‘hard Brexit’ stance.”