The United Kingdom and European Union finally put Brexit to bed, striking a deal in the final days of 2020. While the deal may not be perfect for either side, David Zahn, our Head of European Fixed Income, says the markets welcomed the removal of uncertainty.

Four years after the United Kingdom elected to leave the European Union (EU), a Brexit deal was finally struck, ironing out outstanding disputes on trade and other issues between the two parties. The agreement outlines rules for the new relationship between the United Kingdom and EU in areas including fishing rights and border crossings for both goods and people.

As the deal was struck on Christmas Eve, UK Prime Minister Boris Johnson communicated it as a present for the country. While not perfect, we certainly think it’s a reasonable deal and takes away that cliff edge of the United Kingdom exiting without a trading relationship for goods. There are nuances and other areas still to negotiate, but the major issue surrounding trade—EU fishing rights to British waters—is now behind us.

While fishing isn’t a large contributor to the UK’s gross domestic product (GDP), it is symbolic, and became a political issue. The new deal outlines a five-and-a-half year transition period wherein 25% of EU fishing rights off UK waters will be transferred to the UK’s fleet—after that, there will be annual discussions to determine quotas.

While fishing rights are still subject to future negotiations, financial markets reacted positively to the news of the deal—the British pound strengthened, and the UK stock market rallied amid the removal of uncertainty. It’s also good news for UK corporate credit, because it removes a destabilizing issue. UK gilts haven’t sold off as much as we might have expected, but that’s because growth is expected to be stunted for some time due to COVID-19.