Leading City think-tank New Financial has found that a Brexit transition period agreed in the next few months would reduce the risk of a “cliff-edge” Brexit, but warned such a deal is unlikely.
In its latest report, entitled “A transition to Brexit – deal or no deal?”, New Financial said that the UK will have to offer “significantly more money” to the EU as part of its divorce bill if it is to have any hope of negotiating a transition period.
The increased offer would have to be made at the next European Council meeting in December, and would potentially improve the chances of reaching a trade deal before Brexit in April 2019.
A transition period immediately following April 2019 “would buy more time for businesses, regulators and politicians to prepare for and adapt to the upheaval of Brexit”, the report states.
Four possible types are outlined, ranging from a “status quo” arrangement (which would keep current systems in place but exclude the UK from EU decisions) to a bespoke agreement.
If no transitional agreement is reached, New Financial explains, the pressure is on for the UK and EU to reach a trade deal by March 2019.
“Without such an agreement the UK would leave the EU with no deal – with huge implications for the financial system and wider economy across the EU,” the report warns.
By avoiding this, the government might prevent financial services firms from moving substantial numbers of staff and operations before knowing the detail of the regulatory framework.
New Financial recommended that the UK present as soon as possible a more detailed outline of what it wants from a transition period, and what sort of relationship it wants with the EU post-Brexit.
“If the UK continues with its current approach, firms will have to push ahead with relocating staff,” wrote New Financial. “The industry should continue to plan for a worst-case scenario, while continuing to warn of the huge risks of a ‘no deal’ Brexit and making a constructive case for potential longer-term solutions.”