Thursday 15 October 2020 8:31 am

Goldman Sachs: Brexit drama ahead but thin deal could be reached

There could be Brexit-related drama at this week’s EU summit but a thin Brexit deal is likely to be struck by early November, Goldman Sachs analysts said. 

“We think the perceived probability of ‘no deal’ will persist through the course of October,” analysts led by Sven Jari Stehn wrote in a client note. 

Read more: Sterling jumps amid hopes of a post-Brexit trade deal

“But our core view remains that a ‘thin’ zero-tariff/zero-quota trade agreement will likely be struck by early November, and subsequently ratified by the end of the year.”

Neither the 15 October deadline set by Boris Johnson or the European Commission’s 31 October deadline “constitutes a hard stop on Brexit negotiations,” analysts said, adding: “This week’s European Council may well feature an additional dose of political drama”.

Both sides have said businesses need time to prepare for the end of the post-Brexit transition period on 31 December, when the UK will leave the single market and customs union. 

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Lord David Frost, the UK’s chief negotiator, is holding intense talks with his European counterpart Michel Barnier this week, while Prime Minister Boris Johnson held talks with European Commission chief Ursula von der Leyen yesterday.

The two largest stumbling blocks to a deal being reached are disagreements over state subsidy rules and disputes over fishing rights. 

“Further movement on matters of substance will be required before a deal is done,” wrote Goldman analysts. 

Read more: Boris Johnson turns his back on tomorrow’s Brexit trade deal ‘deadline’

“In particular, the UK will need to acquiesce to a state aid regime that does not offer Downing Street unfettered autonomy,” they continued. “For its part, the EU will need to settle for more restricted access to fishing stocks than permitted under the status quo.”

“It is the end of the transition period on 31 December that constitutes the hard stop on Brexit negotiations,” analysts said, “even if a deal by then only represents the end of the beginning of post-Brexit relations.”