UK: Transition deal until end-2020 agreed

5 min

A draft agreement on the UK withdrawal from the EU has been reached between the two parties. It includes a 21-month transition deal that ends in December 2020. It is expected to be approved by the European Council on 22-23 March and it requires ratification by the national parliaments in the coming months. The transition deal comes in line with our expectations and should alleviate the negative economic shock going forward. We expect GDP growth to reach +1.5% in 2018 and +1.2% in 2019. However, the transition deal still depends on the successful conclusion of an Article 50 deal in the next 12 months and there is no sunset clause for a possible extension of the transition. Indeed, FTAs take five years on average to be negotiated; so 2023 would look more realistic for the EU exit. We continue to expect a limited FTA with an average tariff of 3% on goods and 10% additional costs on services. The UK will now be able to start negotiating trade deals with third party countries during the transition phase but any deal, if ratified during the transition, will only be effective after December 2020.