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Is Brexit Fishing For A Deal?

Is Brexit Fishing For A Deal?

December 22, 2020

Brexit, the United Kingdom’s (UK) withdrawal from the European Union (EU), is making news again as it stumbles toward its apparent conclusion on December 31, 2020. The major sticking point now: fish.

The UK officially left the EU on January 31, 2020, but it has been in a transition period, following all EU regulations while UK and EU negotiators worked on a deal defining the new UK-EU trade relationship. That will end on New Year’s Eve. Deadline after deadline has been blown through in recent months and weeks as issues such as state subsidies, enforcement mechanisms, and EU access to British fishing waters have dogged the process. As the negotiations reach their endgame, fishing rights appear to be the final barrier to an agreement.

“Time is running out for both sides to compromise if they are to avoid the negative economic effects of a no-deal Brexit,” said LPL Financial Chief Market Strategist Ryan Detrick. “Either way, outside of the potential for short-term volatility, we expect this to be a relatively minor event for global markets as the UK comprises only 4% of global output.  ”

As shown in the LPL Chart of the Day, the British pound had been gaining in currency markets since the summer as a trade deal looked more likely, before dipping in recent days on negative news.

View enlarged chart.

The fishing industry is just 0.1% of UK gross domestic product (GDP). It generates less revenue for the UK than the central London department store Harrods, but for an island and coastal nation whose unofficial national dish is Fish and Chips, it remains a sensitive subject. The UK and EU have long had a difficult relationship on fishing rights, with occasional physical clashes between fishing trawlers even occurring. The main objector from the EU side appears to be France, who would be the major loser if EU boats are denied access to British waters.

Both sides are playing hardball, and the possibility of a deal appears to hang in the balance, as UK and EU negotiators bounced back and forth “final” counteroffers early this week. The negotiations have been a long and arduous process, but we believe now there is very little daylight left between negotiating positions. Given the political ramifications of failure, neither party will want this to be the one that got away.

Adding to the urgency, much of the UK is in the midst of a renewed lockdown relating to a serious outbreak of a new strain of COVID-19, which has led to some prominent local lawmakers to call for an extension to the transition period. While an extension to the transition period would be difficult at this late stage, we believe it can’t be completely ruled out. If no deal is reached by December 31, the UK would revert to World Trade Organization rules, including the economically damaging introduction of trade tariffs and quotas.



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All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

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