The December deadline for a Brexit deal is quickly approaching. One consequence of Brexit was that firms couldn’t plan—or they were forced to plan for a no-deal scenario. It’s a big reason why the pace of business investment was so sluggish in the years since the 2016 referendum, particularly when the threat of no deal loomed large during much of 2019. With the end of Brexit in sight, one might hope for improvement. However, the UK faces a protracted mix of problems that could weigh on the economy beyond the end of Brexit.

1) Even with a Brexit deal, the terms could leave businesses hanging

The UK must negotiate a trade deal with the EU before December 31, 2020. We believe that both sides are likely to reach a limited deal that focuses on goods but leaves some services unresolved (those terms can be addressed after the formal deadline). While such an agreement would avoid major disruptions, unresolved terms could increase costs for UK firms and prolong uncertainty. We believe it could also diminish the UK’s attractiveness to European and global firms.

2) After Brexit, will Scotland exit?

The issue of Scotland’s independence is reemerging. The Scottish National Party got a big boost in the 2019 UK election, gaining 13 seats, and the party is pushing for another referendum on independence. According to polls, support for Scottish independence is consistently above 50%, higher than the support leading up to the 2014 referendum.1 Anger at Brexit, the prime minister, and the UK’s COVID response has likely contributed to Scottish dissatisfaction. We believe that if nationalists have a strong showing in Scotland’s next parliamentary election in May 2021, it could fuel the push for independence and raise the pressure on the UK government to allow another referendum. In our view, this issue could mimic (and extend) the business and investment uncertainty caused by the Brexit process.