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Featured BusinessesBeware the Gap - Post-Brexit Trade Deals and What This Means for...

Beware the Gap – Post-Brexit Trade Deals and What This Means for the GBP

 

If you’re someone who tends to read article headlines rather than their detail, you will have been impressed to see the UK strike trade agreements in principle with India and Australia so far in 2021.

In particular, the proposed agreement with Australia has been celebrated as a huge success,  after five years of tentative discussions following the Brexit referendum vote in June 2016.

However, there are significant questions about the true content and impact of these trade deals. So, are they what they seem and what exactly do they mean for the GBP?

 

The Deals Struck so Far

 

A number of trade agreements have been confirmed so far since the UK’s formal exit from the EU, although it should be said that many of these represent a continuation of the terms agreed as part of the single bloc.

 

Even the Indian trade deal has simply looked to remove selected tariffs (on both imports and exports) and build on the existing £23 billion trade between the two nations, although the recently confirmed partnership has proposed to double the value of UK-India trade by the year 2030.

 

The recent trade deal with Australia appears to be a far more comprehensive deal, while it’s certainly significant for its historic symbolism. Currently an Agreement in Principle that comprises more than 1,200 pages, it’s expected to be finalised shortly before being rolled out in 2022.

 

While the UK has been reluctant to release full details of the agreement, it has been confirmed that tariffs will be removed on up to £4.3 billion worth of UK exports, with all tariffs on cars and whisky to be eliminated immediately.

 

Similarly, the deal will liberalise Australian imports into the UK, with 99% of Aussie goods including Australian wine entering the region duty free from 2022 onwards.

 

In ten years time, it’s thought that all tariffs on Australian beef and sheep meat (which is central to the commodity-driven Aussie economy) will be removed completely within 10 years. This is perhaps the single biggest headline to emerge from the agreement, and one that has caused some initial debate amongst economists.

 

Are These Deals Good News for the Economy?

 

So far, the news of the deal has yet to impact the British pound positively, with the MT4 platform reporting a sustained decline in the value of the GBP/USD and the depreciation of the pound against the Aussie dollar.

 

While this trend is being underpinned by the relative strength of the dollar and a new wave of Covid-19 infections in the UK, some have also argued that it has more to do with the actual detail of the trade deal struck with Australia.

 

Certainly, initial analysis of the deal has suggested that this represents a significant win for Australia rather than the UK, while Aussie consumers will also benefit from cheaper products almost immediately.

 

From an economic perspective, it may not even deliver the 0.02% boost to UK GDP that was forecast before the final deal was struck, with some suggesting that the true financial impact could be closer to zero.

 

Not only this, but the future influx of tariff-free agricultural produce into the UK could decimate the farming industry on these shores, while lowering food standards and taking another slice out of the national GDP.

 

This has yet to be seen, of course, but there’s no doubt that this and similar post-Brexit trade deals may not necessarily be as impressive as the government is currently suggesting.

 

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