The year 2020 is coming to an end. However, it is still unknown whether London and Brussels will be able to reach a trade deal. Experts fear a no-deal Brexit because it could be more damaging to the UK economy than to the European one.
According to analysts, there are two factors that can provide support to the British stock market. Firstly, it is the recovery of the UK economy after the COVID-19 pandemic, which has a strong impact on both the FTSE 100 Index and the FTSE 250 Index. Lastly, it is a spark of international investor interest in the UK equities. All this could be possible if the Brexit related issues are tackled.
Based on analysts’ estimates, the economic recovery in the United Kingdom is now gathering pace. The situation has improved thanks to the registration of vaccines against COVID-19 developed by several British pharmaceutical companies. Meanwhile, GlaxoSmithKline and Sanofi reported a delay in their vaccine trial on December 11 due to low immune response in older adults. Notably, the management of both companies insists on restarting clinical trials in order to fix the problem. As a result, their shares spiked by 0.7% amid the weakening of the pound sterling and hopes for an early rollout of effective vaccines.
A prolonged withdrawal of the UK from Europe deserves special attention. In fact, it raises serious concerns among experts. There are doubts that the parties will come to a decision on Brexit by December 31. According to President of the European Commission Ursula von der Leyen, there is a high likelihood of a no-deal Brexit after the transition period expires on January 1, 2021.
Analysts suggest that London and Brussels have lost a chance to sign a trade agreement when the EU outlined additional requirements. Namely, the UK government should comply with the future tightening of the European regulatory standards. Such a demand undermines all efforts to make a deal.
Experts believe that the consequences of a no-deal Brexit will be more damaging for the UK than for the EU. Under the WTO rules, the British authorities will be obliged to put duties equivalent to 13% of the UK's GDP on imports from Europe. Consequently, it may severely affect the cost of living in the country. European leaders are fully aware of their advantage. Therefore, they want the UK to accept their terms. As a result, it may scare off international investors, who plan to invest in British stocks, from the UK stock market.
