Britain and the EU could take at least five years to reach an agreement on trade in the wake of Brexit, a senior UK analyst has warned.
Investec’s chief economist in the UK Philip Shaw described the British government’s two-year timeline for negotiations as “unachievable”.
While agreement in principal about how trade might operate in the future could be reached in 2019, he said it was unlikely to be fully implemented for several years after that.
Given the complexity of the issues involved, Mr Shaw said there was likely to be an implementation phase of between two and five years after the UK exits in 2019.
“What we’re saying to clients is, don’t panic, we know that Westminster and Brussels realise you cannot settle this within 18 months or two years.
“So what we’re aiming for is perhaps a more generalised set of principles to be agreed and ratified with the detail sorted out later,” he said.
New relationship
British prime minister Theresa May has raised the prospect of an implementation phase for Britain to put into place its new relationship with the EU, albeit without specifying the time involved.
Mr Shaw was speaking at a Brexit event in Dublin on Thursday hosted by Investec’s Irish arm.
He spoke about why the UK economy had held up in the wake of the referendum despite some dire predictions.
The drop in the pound has had a more visible impact on prices in the high street
“Forecasts of a sudden drop-off in private sector business investment didn’t happen, in contrast to anecdotal evidence,” Mr Shaw said.
He believes this was primarily down to the Bank of England’s response to Brexit. In the wake of the vote, the bank cut interest rates and restarted its quantitative easing programme to stave off a possible slowdown.
Export numbers
He also noted that the decline in sterling had helped boost export numbers in the latter half of 2016.
However, the other side of the sterling depreciation is now beginning to bite, he said, with consumers cutting back on spending in response to higher prices.
“The drop in the pound has had a more visible impact on prices in the high street in 2017,” said Mr Shaw.
“This is putting some palpable downward pressure on consumer spending,” Mr Shaw said, noting retail sales declined in volume terms during the first three months of 2017.
New car sales in the UK, meanwhile, slumped by 20 per cent in April, the biggest year-on-year drop in over six years, according to new figures published on Thursday.
Household finances
Mr Shaw said there were also signs of a slowing in the main UK housing market because of the impact on household finances.
“So the first six months were okay in terms of the British economy’s response to the referendum, but now we’re beginning to see some slowdown.”
However, he said Investec was not predicting a “calamitous” contraction in the economy but a more subdued level of growth in 2017 and 2018, perhaps between 1.5 per cent and 2 per cent.
Nonetheless, he said the shortfall in economic output as a result of Brexit – estimated at around 0.5 per cent each year – was significant in monetary terms when viewed over an extended period.
