Two of the key flashpoints in the Brexit negotiations could have wide-reaching consequences for industry and the pound.
In a recent webinar from moneycorp talk, economist Vicky Pryce highlighted the importance of fisheries and financial services to the Brexit negotiations. If we look at the numbers alone, it would seem that financial services should take priority – in 2018, financial services were worth £132bn to the UK economy, and fisheries just £784m, or just 0.1% of the country’s economic output. However, the fishing industry is emblematic of the reasons for Brexit and as a result, any capitulation on the issue could seem like a betrayal which could diminish trust in the government.
Why is fishing so important?
When the UK first joined the EU, UK fishermen felt betrayed by the agreement under the EU’s common fisheries policy (CFP) and the imposition of quotas. Much was made in the Brexit campaign that the UK take back control of its fishing territories. Another reason why it is so important is that an agreement on fishing rights and quotas must be reached is that it must be achieved by July 2020 and is a precondition for a much wider trade agreement. Many other industries will be hoping for a swift resolution so that the negotiations can move forward and provide greater clarity.
What is the issue with financial services?
EU passporting rights allowed financial services firms to trade in any other member state under the supervision of British regulators and without further authorisation from each country. When the transition period comes to an end and the UK loses access to the single market, it will mean the end of passporting rights unless a new agreement can be reached. Already, more than 300 UK companies have opened EU hubs to retain their access and roughly 7,000 banking jobs have been transferred out of the City of London to the Eurozone, along with an estimated £1trn of assets.
Fisheries for finance?
Not only are there significant practical challenges to overcome within both industries, but Irish PM Leo Varadkar has suggested that access to European financial markets could be granted if the UK opened its fishing waters. This would be a difficult term for the UK government to accept, given the political capital it has invested in the industry. Any stumbling block with these two issues is likely to cause alarm for other industries in goods and services. What all this means in the short term is more uncertainty for businesses across all industries, and as a result, more pressure on the pound. Positive developments could see sterling make gains, but further frustrations and clashes could put pressure on the currency.
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