With the Conservative Party’s confident win in last week’s general elections in the United Kingdom, Brexit is once again on investors’ lips.
While much time within the past three years was spent in a “will they, won’t they” limbo as the European Union and the United Kingdom struggled to reach an exit agreement, now the conversation has shifted. After all, Boris Johnson managed to procure a deal back in October and has promised to bring that withdrawal agreement before Parliament this week. MPs will then have the chance to debate it, propose amendments, and when they are satisfied, pass it into law.
There are six weeks left until the Brexit deadline, and the Tories have the majority in Parliament, so the deal and the exact date when the UK will leave the European Union are no longer uncertain.
However, Boris Johnson decided to add a new issue to the Brexit agenda, namely the transition period. The UK is legally allowed up to three years after the Brexit date to negotiate new agreements on trade, defense, finance, migration, and so forth. It could be a slow and cumbersome process, especially because the UK needs to sign separate agreements with each EU member state.
Nevertheless, the UK Prime Minister stated that he will pass an amendment to the bill that will shorten the transition period until the end of 2020 instead, giving up two years’ worth of extra time for negotiations. He plans for his government to secure trade deals (and more) with every EU member state in just 11 months.
Considering that the United States and China have been trying to do the same for nearly two years with little success - and that the UK has more points to settle with the EU than simply trade - investors were taken aback by Johnson’s actions. The Prime Minister’s strategy seems to be a scare tactic, something to encourage the EU to be more productive in the negotiations.
The new risks posed by Johnson’s desire to get many complex agreements done in a short amount of time next year harmed the pound, weakening it.
