The United Kingdom officially left the European Union in January of this year, but issues remain in the Brexit saga, namely trade relations. David Zahn, our Head of European Fixed Income, weighs in on the odds no deal will be reached by year-end—and the market implications.

The United Kingdom voted to leave the European Union (EU) more than four years ago, and the process has been long and complicated. While ties to the EU were officially severed in January, the two sides still need to work out their new relationship in many areas before a year-end deadline, including trade, immigration, the Irish border, citizens’ rights and fishing access.

In our view, negotiations will probably continue right up until the final days of the year, even though leaders on both sides have been throwing out various dates to get a deal done in the next few weeks. Brexit remains incredibly fluid and both sides are posturing. If no deal is reached by the end of the year, arguably the most important aspect—trade—would default to World Trade Organization (WTO) rules.

We are getting brinkmanship on both sides, and neither is being very flexible. It is interesting that the United Kingdom was able to sign a free trade deal with Japan—the first it has inked as an independent trading nation. The UK government has stated the deal will bring a £1.5 billion boost to its economy.1 So clearly, trade deals can be done fairly quickly.