The lines are clearly drawn between the European Union and the U.K., with impeding negotiations expected to widen the already massive gulf between the two sides. In this week’s Brexit Tracker, we see what challenges are on the horizon as negotiations begin, the stern warning Prime Minister Theresa May gave MPs and the new study that shows the future of the U.K.’s economy may not be as bleak as predicted.
Preparing For (Negotiation) Battle
The Brexit talks are coming.
And many expect the unprecedented process of legally establishing the split between the EU and the U.K. to get very complex. Both sides are staking out their positions, and the gap between them is only widening.
Last week, Ivan Rogers, Britain’s former ambassador to the EU, told a U.K. parliamentary committee that the Brexit negotiations will be “on a scale that we haven’t experienced, probably ever and certainly since the end of World War II,” a report by The Wall Street Journal noted.
Though there are two years allotted for the negotiations to take place, there will still be a lot of work to get done in what is actually a short period of time considering.
It’s expected that three agreements over Brexit will be made during that time — one settling the actual separation terms, another for the long-term trade and economic ties and a final interim agreement to transition the U.K. from EU membership to its independent standing.
“It’s a fundamental mistake to think there can be three deals in two years. There will be one-and-a-half deals at best,” a senior EU official told WSJ.
In a whitepaper published last week laying out its negotiation position, the British government said it would like to avoid “a cliff edge for business or a threat to stability, as we change from our existing relationship to a new partnership with the EU.” The government also noted its desire for an agreement on a future partnership between the U.K. and EU and a “phased process of implementation.”
While both sides admit there’s a possibility that no agreement can be reached, we’ll remain on the edge of our seats over the coming months as the formal negotiations begin taking shape.
There Will Be No Backsliding
As the U.K.’s House of Commons begins its review of the European Union Bill, which lawmakers overwhelmingly approved in a vote last week, U.K. Prime Minister Theresa May gave a strong warning to MPs to make no attempts at hindering the way the U.K. voted by making changes to the parliamentary bill.
The bill officially started the ball rolling on the U.K. and EU starting formal Brexit negotiations, giving May the power to trigger Article 50 of the Lisbon Treaty, but some Labor, SNP and Lib Dem MPs are still seeking concessions, BBC News reported.
However, May made it clear that she and EU leaders are ready to “get on” with Brexit talks.
During an EU summit in Malta over the weekend, May told MPs:
“Our European partners now want to get on with the negotiations. So do I, and so does this House, which last week voted by a majority of 384 in support of the government triggering Article 50. There are, of course, further stages for the bill in committee and in the Lords, and it is right that this process should be completed properly.”
“But the message is clear to all — this House has spoken and now is not the time to obstruct the democratically expressed wishes of the British people. It is time to get on with leaving the European Union and building an independent, self-governing, global Britain,” she continued.
Before the bill can officially be made into law, it must continue being reviewed and then approved by the House of Commons before going through a similar process in the House of Lords. If no changes are made, the bill will become law. But if there are major changes or amendments, those modifications have to go through the House of Commons and House of Lords again respectively for approval.
It’s a long process that the U.K. is hoping to have wrapped up by the end of March in order to deliver its formal intention to leave to the EU. Though the approval process for the bill is only expected to take a month, the threat of additional changes could throw a big monkey wrench in those plans.
The Economic Projection
Despite the uncertainty facing the U.K. as it moves forward with Brexit, a new study from PricewaterhouseCoopers shows that positive long-term growth may be on the horizon for the U.K.’s economy.
The report projects that the U.K. will only fall to 10th from ninth place in its global purchasing power parity (PPP) rankings by 2050. The PPP measures the value of a country’s currency compared to other currencies when it comes to the cost of a local market basket of goods, the Independent noted.
“After a year of major political shocks with the Brexit vote and the election of President Trump, it might seem brave to opine on economic prospects for 2017, let alone 2050,” John Hawksworth, chief economist at PwC, said. But he added that he has “a relatively positive long-term growth projection for the U.K.” as a result of “favorable demographic factors and a relatively flexible economy by European standards.”
PwC’s assumption is that Brexit’s impact to the economy will take place mainly between now and 2020.
“After 2020, U.K. growth is assumed to revert to its long-term trend as determined by the fundamentals of working age population growth, investment in human and physical capital and technological progress,” the report stated.
Just last week, the Bank of England made a surprising raise to its 2017 GDP growth forecast to 2 percent, up from just 1.4 percent in Nov. 2016. The bank still expects a slowdown in growth in the coming years, though, with an anticipation that GDP will only expand by 1.6 percent and 1.7 percent in 2018 and 2019, respectively. It forecasts a 1.5 percent hit to GDP, which amounts to nearly £30 billion in today’s money.