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Brexit update – Extension Agreed

Last night the European Union agreed to offer a further extension to the Article 50 period, allowing the UK to remain a member of the EU until 31 October. The terms of the extension are flexible, meaning that the UK could leave earlier if the withdrawal agreement is agreed. In practice an earlier exit under the withdrawal agreement would make little difference to the business environment, as the transition period which would then commence would include “standstill” provisions until December 2020.

As well as avoiding the immediate threat of a chaotic no-deal exit tomorrow, a consequence of these discussions is that leaving without a deal looks unlikely at any point in the future. The EU has consistently said that no further extension would be available without the UK committing to a clear process, such as a referendum, or an election to resolve the Brexit deadlock, but was ultimately prepared to grant an extension with few conditions when faced with the risk of no deal. If the UK fails to reach a conclusion by 31 October, many commentators believe that the EU would once again avoid a no-deal exit by offering a further extension.

Cross-party talks will now continue with some indications that a permanent customs union arrangement or a further referendum could become more likely, but it is still difficult to predict any form of Brexit that could obtain a majority in Parliament. Unless there is a change of Prime Minister or a general election which changes the parliamentary arithmetic, we don’t expect any certainty about the UK’s future relationship with the EU to emerge anytime soon.

The extension provides businesses with time to take stock of their Brexit preparations while the threat of imminent no-deal is removed. Barring a major breakdown of the relationship with the EU, there’s a high probability that current trading conditions will now remain unchanged until at least December 2020 when the transition period is due to end. However, for businesses that would be affected by tariffs or non-tariff barriers, or changes in their regulatory environment following the end of the transition period it will be vital to monitor the process closely and to consider steps to minimise harm to their business model. We will continue to provide updates as we find out more about the likely trading consequences for different sectors of the economy.

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