The UK and EU have been negotiating the terms of their post-Brexit trade deal for months. After much back-and-forth, a potential agreement has recently been reached and is expected to be ratified soon.
One aspect of this potential deal revolves around the Northern Ireland Protocol, which seeks to ensure that goods can continue to flow freely between Great Britain and Northern Ireland without any additional tariffs or restrictions.
This protocol includes provisions for customs checks at ports in order to prevent illegal smuggling across borders. The goal of the protocol is to maintain an open border between the two countries while also keeping both nations compliant with international law.
Effect on Stocks
The Brexit negotiations between the UK and EU have had a significant impact on stock prices in both countries.
Understanding what are stocks is an important part of investing In the UK. Stocks traded on the FTSE 100 index of major blue-chip companies fell sharply in response to initial announcements that no agreement would be reached. Since then, stocks have recovered somewhat as an agreement appears increasingly likely.
However, while some sectors like pharmaceuticals are performing relatively well due to increased demand for their products during the pandemic, other more domestically focused industries such as travel, and hospitality continue to struggle due to restrictions imposed by lockdown measures.
The FTSE 250 index of mid-cap companies have also been impacted by Brexit but with different results than its larger counterpart. Initially falling alongside, the FTSE 100 upon news that no deal had been reached, these mid-cap stocks subsequently rose rapidly when it became clear that an agreement was likely and ended up outperforming large caps over 2020 as a whole despite having dropped significantly at points throughout the year.
This is largely attributed to smaller firms being less exposed than larger ones to potential disruptions caused by tariffs or delays at ports should there be a ‘no-deal’ outcome from Brussels.
Overall, stock prices across both indices have been greatly affected by ongoing negotiations between Britain and Europe over post-Brexit trade rules since the 2016 referendum result was announced.
While short-term volatility remains a possibility until full details of any future deal become known, investors appear increasingly confident in medium-term prospects given recent developments suggesting an imminent breakthrough in talks between London and Brussels
Reaction From the Markets and Consumer
The reaction from investors to the potential Brexit trade deal has been very mixed. On the one hand, some large-cap stocks in industries such as pharmaceuticals and technology have seen significant rises as they are less exposed to any potential disruption that could come with a ‘no-deal’ outcome.
This can be seen in FTSE 100 index of major blue-chip companies which fell sharply when news of no agreement first broke but then recovered somewhat when it became clear an agreement was likely. At the same time, consumer sentiment around Brexit has also been affected by ongoing negotiations between London and Brussels.
A survey conducted in October 2020 by ‘You Gov’ revealed that only 13% of British consumers felt positive about their personal finances if there were no trade deals reached between Britain and Europe while 53% said they would feel negative about their financial situation should this occur.
Furthermore, 82% reported feeling uncertain or anxious about what a ‘no-deal’ outcome would mean for them personally, highlighting how closely people are paying attention to developments related to post-Brexit trade rules ahead of January 2021’s deadline for full implementation of new regulations.
Conclusion
Overall, the potential UK-EU trade agreement has had a significant impact on stock prices in both countries. On the one hand, large-cap stocks have seen a rise as they are less exposed to any potential disruption that could come with a ‘no-deal’ outcome.
Consumer sentiment around Brexit has also been affected by ongoing negotiations between London and Brussels, with many feeling uncertain or anxious about what a ‘no-deal’ outcome would mean for them personally. In terms of the longer-term implications of this deal, it is likely that there will be further volatility in stock prices until full details become known.
However, if an agreement is ratified successfully then investors can expect greater stability moving forward as both Britain and Europe move towards rebuilding their economic ties after years of uncertainty caused by Brexit negotiations. For now, though it appears that positive developments have given traders some confidence that an amicable resolution may eventually be reached between the two sides before January 2021’s deadline for the implementation of new regulations.
