Nima

Director of Client Relationships
Responsible for the management & development of the easyMarkets client base as well the development of our IB partner program.

On March 29, the United Kingdom officially launched the Brexit process by triggering Article 50 of the Lisbon Treaty, the mechanism that gives member states two years to negotiate a new trade agreement with the European Union (EU). UK Prime Minister Theresa May officially began the divorce procedure in a letter to EU Council President Donald Tusk.

The UK’s departure from the EU is “a historic moment from which there can be no turning back,” May said.[1]

Tusk confirmed receiving the letter by tweeting: “After nine months the UK has delivered. #Brexit.”

Fears about the effects of Brexit have been top of mind for investors, citizens and business executives. But analysts say the first risk is the divorce itself. Article 50 pits Downing Street against 27 EU states that don’t appear eager to extend free market access to the UK. In fact, the EU may look to make an example out of Britain for any member state wishing to follow its path. Previously, Brussels had indicated that continued free market access without guaranteeing mobility rights was off the table.

In her letter to Mr. Tusk, Mrs. May attempted to highlight the growing need for cooperation between London and Brussels, arguing that a failure to reach a mutually beneficial trade deal would harm European cohesion.

“If we leave the European Union without an agreement the default position is that we would have to trade on World Trade Organisation terms. In security terms a failure to reach agreement would mean our cooperation in the fight against crime and terrorism would he weakened,” she said in her letter.

There is currently no timetable for when the negotiations will begin. In the meantime, London is contending with renewed calls for Scottish independence in the wake of Article 50. Scottish First Minister Nicola Sturgeon is seeking to hold a Brexit-style referendum on continued membership of the United Kingdom in efforts to maintain ties to the EU. Scottish parliament voted last week to allow the First Minister to pursue a referendum, which is tentatively scheduled to take place between autumn 2018 and spring 2019.[2]

Scottish independence running parallel with Brexit negotiations could have far-reaching consequences for the global financial markets. Uncertainty about the outcome of either process could stoke uncertainty at a time of growing geopolitical instability tied to U.S. protectionism and weak global growth. While the UK economy has faired surprisingly well since the June 23 Brexit vote, growth could slow as businesses and consumers defer spending plans.

A recent poll from Deloitte confirmed that Brexit remains the top risk for UK executives, but that the fear of impact has receded. However, 60% of businesses still believe the general business environment will be worse when the UK exits the EU.[3]

[1] BBC (March 30, 2017). “‘No turning back’ on Brexit as Article 50 triggered.”

[2] Anna Edwards (April 1, 2017). “Sturgeon Sticks With Timing for Scottish Independence Referendum.” Bloomberg.

[3] Sarah Butler (April 3, 2017). “Brexit top risk for UK bosses but fears of impact receding – poll.” The Guardian.

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