Perspectives

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EcoPerspectives // 1 quarter 2019  
economic-research.bnpparibas.com  
United Kingdom  
Brexit update  
On 15 January 2019, UK MPs rejected the proposed Brexit agreement reached by EU Heads of State two months earlier. With 432 of  
the 634 votes going against the deal, this result has significantly weakened Prime Minister Theresa May in future discussions with the  
EU and with Members of Parliament. Today almost anything looks possible, starting with a delay in the official date of the UK’s  
departure, currently scheduled for 29 March.  
The extra month of talks  MPs were initially due to vote on the deal  
on 11 December 2018  was not enough for Mrs May to win the  
1- Growth and inflation  
GDP Growth (%)  
Inflation (%)  
support of her own party, nor any move by the EU to time-limit the  
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Forecast  
Forecast  
backstop’ or remove it altogether. The backstop is the main  
sticking point for approval of the Withdrawal Agreement, but not the  
only one; support for a second referendum is becoming increasingly  
vocal, challenging the very principle of Brexit itself. Arguments for a  
second vote were strengthened by the European Court of Justice’s  
ruling on 10 December 2018 that the UK is “free unilaterally to  
revoke (...) the notification of its intention to withdraw from the  
European Union”. However, in view of polling figures, the outcome  
of any second referendum would be highly uncertain.  
2
.7  
2
.5  
2
.0  
2.0  
20  
1
.8  
1.8  
1.8  
1
.6  
1
.3  
0
.7  
1
6
17  
18  
19  
20  
16  
17  
18  
19  
If it is not cancelled, Brexit could be postponed at the UK  
government’s request. The EU would consider such a request, while  
being restricted by the European parliamentary elections planned  
for 23 to 26 May 2019, as the Parliament will need to approve a  
withdrawal agreement (provided of course that there is an  
agreement to approve). Current Members of the European  
Parliament are due to hold their last plenary session from 16 to 18  
April 2019, whilst the newly elected parliament  without any British  
members  will begin work at the beginning of July 2019. Under  
these circumstances, the EU may push back the 29 March Article  
Source: National statistics, BNP Paribas  
transition period, as the EU has refused to extend the benefits to  
British firms after withdrawal. The equivalence regime is significantly  
less advantageous and stable than passporting. Dependent on  
approval by the European authorities, equivalence can be granted  
for a limited time and covers a narrower range of geographical  
markets and business areas. Such restrictions threaten to impede  
access for European companies to the London market and for  
British companies to European markets. This change of regulatory  
regime will also require a change in the status of British and  
European companies seeking to continue to do business in the EEA,  
for the former, and the UK for the latter.  
50 expiry date to give UK more time for its MPs to ratify an  
agreement, or call a general election, or a second referendum. It  
remains to be seen how much time would be allowed, and whether  
or not it would be enough to finally resolve the Brexit issue.  
This said, the financial sector appears to be one of the best  
prepared, even in the event of a no-deal Brexit. In the latter event,  
the European Commission nevertheless believes that a sudden loss  
of access to London’s clearing houses for European companies  
could affect the financial stability of the EU. For this reason, it is  
prepared to authorise such access for 12 months following a no-  
deal departure, to give European companies time to adapt and  
London’s clearing houses a chance to obtain the equivalence  
needed for them to continue to do business in the EEA.  
Continuation of financial activities  
In case of Brexit, whether with a deal or without, the United  
Kingdom will become a third country and is likely to be subject to the  
equivalence regime with regard to its trade in financial services with  
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the European Economic Area (EEA) instead of by the passporting  
system currently in place. On this point, the adoption of the draft  
Withdrawal Agreement by MPs on 15 January would only have had  
the effect of delaying the loss of passporting rights to the end of the  
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In order to avoid the reintroduction of a hard border between Northern Ireland  
and the Republic of Ireland, a safety net, or backstop, solution allows for the  
United Kingdom to remain in a customs union with the European Union beyond  
the end of the transitional period on 31 December 2020 if insufficient progress  
has been made on the future relationship between the two.  
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Under a 1992 agreement, the EEA includes the EU and three members of  
EFTA: Iceland, Norway and Lichtenstein. Switzerland voted in a referendum not  
to join.  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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