Lots for local businesses to weigh up as Brexit process begins

By Conor Lambe, Economist at Danske Bank

The process of the UK leaving the European Union is now underway. Article 50 has been triggered and the clock is now ticking. If the process lasts two years, and there is no unanimous decision to extend the talks, then it is anticipated that the UK will cease to be a member of the EU from the end of March 2019.

Going into the negotiations, there are a number of areas around which the UK and the EU have different views. One of the most obvious is when certain things will be discussed. In her letter triggering Article 50, Theresa May made it clear that she wants to discuss a trade deal and the future of the UK’s relationship with the EU at the same time as the terms of withdrawal. However, the EU has been firm in its desire to focus on the UK’s exit first, before then moving on to the relationship post-Brexit.

While there will be some areas on which the UK and EU will share common ground, there will also be plenty on which their opinions differ. So uncertainty is likely to remain elevated in the months ahead. As businesses navigate this period, there are a number of things they should watch out for.

European Council meeting on 29th April 2017

The 27 member states, excluding the UK, will meet on 29th April to adopt the guidelines that the EU will follow during the negotiations. This meeting is scheduled to take place between the first round of the French presidential election on 23rd April and the second round on 7th May.

The scheduling of this Council meeting could be a sign that the EU does not intend to let upcoming elections, including those in Germany and Italy, have a significant impact on the negotiating position agreed at the outset.

Following the adoption of the guidelines, it is anticipated that formal negotiations will begin sometime in May or June.

Indications of what Brexit will mean for Northern Ireland

It was encouraging to see special mention given to the border with the Republic of Ireland and the need to take account of the Northern Ireland peace process in the Prime Minister’s Article 50 letter.

It is also good to see that the EU are alive to these issues. The EU’s chief Brexit negotiator, Michel Barnier, has already stated that the EU “will not stand for anything that weakens dialogue and peace in Northern Ireland”. It seems as if this is an area that both sides want to make some progress on during the early stages of the negotiations.

In practice it will be very difficult to fully resolve the issue of the border without having a good idea of what trade and customs arrangements will exist between the UK and the EU once Brexit takes place.

A resolution to local political instability

Following the passing of the deadline for the local political parties to form a Government, the Secretary of State has allowed the negotiations to continue for a little longer. It is likely that he will let discussions take place until around 18th April, when the UK Parliament returns from the Easter Recess.

In her letter to Donald Tusk, the Prime Minister stated that the Government will take account of the views of the UK nations during the Brexit negotiations. She also expressed an expectation that the devolved governments in Northern Ireland, Scotland and Wales will see their powers increase once the UK leaves the EU.

Therefore, it must be hoped that the political parties here can reach a deal to form an administration in the coming weeks, and then engage fully in the Brexit negotiations.

A slowdown in economic growth

In the months ahead, Brexit-related uncertainty is expected to act as a drag on business investment. It is possible that current levels of uncertainty may increase in the months ahead as information on the progress made during the negotiations, particularly if significant challenges are encountered, begins to emerge.

When coupled with the impact that rising inflation will have on consumer spending, economic growth in the UK and Northern Ireland is expected to slow in 2017 and 2018.

As the UK begins the process of leaving the European Union, businesses face a lack of clarity about what the future holds. Despite this, standing still is not an option and there are some things that continue to hold for all firms. They need to keep planning thoroughly and be ready to seize the next opportunity that comes along.

This article was published in the News Letter on 4th April 2017.​​​

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