Goldman Sachs said it has hopes that a “thin” zero-tariff/zero-quota trade agreement could still be hammered out between the UK and the European Union.
In a note to clients on 5 October, the US investment bank said that the “latest smoke signals from London and Brussels suggest that political leaders have begun to create the time and space required for compromise”.
The note comes after urgent 3 October talks between Prime Minister Boris Johnson and European Commission president Ursula von der Leyen, at which the leaders said they would urge their respective negotiators to intensify technical talks aimed at securing “a strategic EU-UK relationship in future”.
“We continue to think the perceived probability of ‘no deal’ will persist beyond the next European Council meeting in mid-October, but our core view remains that a ‘thin’ zero-tariff/zero-quota trade agreement will likely be struck by early November, and subsequently ratified by the end of December,” Goldman analyst Adrian Paul said in the note.
The bank noted the infringement process that the EU had begun against the UK and said further movement would be needed on certain issues before a deal is done.
“In particular, the UK will need to acquiesce to a state aid regime that does not give Downing Street unfettered autonomy,” Paul said.
The bank also noted that the EU is unlikely to sign off free trade while the UK pursues its contentious Internal Market Bill, which contravenes the terms of the original Brexit withdrawal agreement.
“This delicate balance implies that the risk of a breakdown in negotiations cannot be ruled out,” the analyst’s note cautioned.
Noting the risks of discussions unravelling, the bank said that from the EU’s perspective, there remains a risk that – despite going through the motions of free-trade negotiations – “no amount of political intervention can undo the damage wrought by the UK’s attempt to disapply elements of the Northern Ireland Protocol”.
Paul added that a thin trade agreement would require “the successful execution of a delicate piece of political choreography”.
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