Brexit: “There is no free lunch”, but we all want it - Rabobank

Analysts from Rabobank, maintain their base case for the post-Brexit partnership agreement remains a transition period followed by a Free Trade Agreement and they warn that though Labour’s official endorsement of a customs union tilts the probability of it being included in the agreement.

Key Quotes: 

“Prime Minister (PM) May’s long-awaited key speech on the future relationship with the EU provided a bit more clarity on the government’s preferred Brexit end-state, but brought few new insights.”

“The British government reiterated its interest in maintaining current rights and obligations in some sectors while diverging to various extent in others; it also reiterated well known demands such as autonomous legislation and trade policy and no hard Irish border.”

“The speech failed to address key concerns of the EU, as illustrated by the EU Council‘s negotiation guidelines for the post-Brexit partnership with the UK; the guidelines were published only a few days after May’s speech and position the EU at far distance from the UK ahead of the 22-23 March EU Summit.”

“Labour’s move on 26 February to officially support a permanent customs union with the EU could affect parliamentary dynamics to PM May’s disadvantage if Labour and pro-EU Tories were to join forces.”

“We are maintaining our base case of a transition period until 31 December 2020 followed by a Free Trade Agreement somewhere between the EU’s deal with Canada and the agreements with Switzerland. We do note that Labour’s endorsement of a customs union increases the odds of a customs union after Brexit. But it also increases the odds of more tensions in British politics that could even trigger an early election. A customs union or even membership of the European Economic Area, like Norway, or a 'hard' Brexit also remain possible outcomes. The persistency of issues such as the Irish border also remain a threat to an orderly Brexit. With just a year to go before the UK leaves the EU, any further delays of the negotiations can become problematic.”