UK and EU officials did resume Brexit negotiations at the start of this week, to try and make some progress, despite the lockdown situation.
The UK’s chief Brexit negotiator David Frost and his Brussels counterpart Michel Barnier have been negotiating via video conference, which is the first of three to be held over the next six weeks. The ultimate aim is to thrash out and ratify a UK-EU Brexit trade deal by the 31 December deadline.
However, last week the UK did send out a reminder that they will refuse any request for a Brexit trade deal extension by the EU, according to the Prime Minister’s official spokesman. Reiterating the government's position, saying that an extension to the 31 December deadline would hamper the UK’s long term response to the coronavirus crisis.
Recently, International Monetary Fund (IMF) chief IMF chair Kristalina Georgieva urged the government to extend the deadline to reduce the uncertainty during the Covid-19 crisis.
Boris Johnson’s spokesman responded by rejecting Georgieva’s plea, saying:
“If the EU asks for an extension, we will say no. An extension of the transition would prolong negotiations, delay uncertainty and delay our own control of our borders. It would keep us bound by EU legislation when we need the flexibility to respond to the coronavirus pandemic.”
We believe given the massive disruption caused by Covid-19, largely reducing the negotiating time, an extension is inevitable but Johnson has no incentive to seek one until June, which is the deadline for a one-off UK request.
Do note, today - Friday, Michel Barnier, the EU’s lead negotiator, will host a press conference at around 1200 local time in Brussels to give updates.
What this means for GBP
Risks in our view remain tilted to the downside, subject to further selling and any rallies/pullbacks being attacked by the bears. It could very much be the case all the way until June, where we noted at that point if there is a lack of progression, then Johnson could as for a one-off extension request.
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