On Friday, January 31, 2020, the United Kingdom will officially leave the European Union as part of the Brexit deal. After Brexit day, we enter the transition period where the United Kingdom and the European Union will have to discuss the terms of their future relationship.
The EU and the United Kingdom initially agreed on a transition period of twenty-one months – from March 29, 2019 until the end of 2020 – which is a notable period where both parties have enough time to form their future relationship. However, due to Brexit delays, the transition period is now only eleven months. Prime Minister Boris Johnson made sure to amend the Withdrawal Agreement Bill to rule out any extension for the transition period deadline. Meanwhile, the European Union officials believe that the time table is short, and both parties will need more time to reach an agreement.
During the transition period, the United Kingdom and the European Union will have to reach a trade agreement, which would set the terms of exchanging goods between the two blocs. Importers will have to pay tariffs on goods exchanged between the United Kingdom and the European Union, if both parties fail to strike a trade deal. Moreover, the UK and EU will have to decide on Law enforcement, data sharing, and security, aviation standards and safety, fishing water borders, electricity and gas supplies, and licensing and regulation of medicines. A lot of work and compromise should be performed on both ends to ensure the Brexit will occur with the least negatives impacts.
With much time left for the transition period deadline, market participants will be looking forward to the economic growth during the first half of 2020 and how will the Bank of England deal with the signs of an economic slowdown. The Bank of England left interest rates unchanged at 0.75% earlier today, despite the heightened expectations of an interest rate cut by 50 basis points. In his presser, Governor Mark Carney stated that the economic momentum picked up following December elections, but warned of slow growth after Brexit. Pound pairs cheered the decision of the monetary policy committee where the GBPUSD rallied to a one-week high of $1.3109, the GBPJPY soared to 142.70, and the EURGBP tumbled to 0.8412.
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