Brexit: Will there eventually be a deal? - ING

Given the volume of trade done between the UK and the EU, the impacted supply chains, the millions of jobs and tax revenues, a deal makes sense for both sides, suggests the research team at ING. 

Key Quotes 

“The UK position has already softened on the divorce bill and the role of the European Courts of Justice and it seems as though they are also edging back from the "no deal is better than a bad deal" scenario. The EU is also recognising the importance of getting a positive agreement for both sides by acknowledging the need for a transitional period. Nonetheless, the actual trade discussions will be tough and protracted, but two factors cargue in favour of a mutually beneficial deal.”

“Firstly, the worst case scenario of no deal and the adoption of World Trade Organisation Rules would introduce tariffs on trade. On average they amount to 2-3%, but a wide range of food products will be hit particularly hard. This could see upward pressure on prices and a further squeeze on spending power. But the key issue is the wide criteria. For example, the full US trade schedule contains 192,275 different lines of tariffs, which means companies can face tough choices on optimising their production processes if they have to import multiple different types of components. Dispute settlement also takes a long time - typically a year and up to 15 months if there is an appeal - a period during which trade can be heavily impacted.”

“The second reason that argues for a positive deal is demographics. The fact that birth rates have declined across the EU, means that Europe's population is set to fall over coming decades. However, in the UK the birth rate has increased in recent years, fuelled by immigration. Consequently, the EU predicts that the UK is set to overtake Germany as Western Europe's most population nation within the next 20 years. From the EU's perspective, having access to a growing market that is on its doorstep and is cheap to export to clearly makes sense, particularly when the  domestic market is being squeezed.”