Four years after the United Kingdom elected to leave the European Union (EU), a Brexit deal was finally struck, ironing out outstanding disputes on trade and other issues between the two parties. The agreement outlines rules for the new relationship between the United Kingdom and EU in areas including fishing rights and border crossings for both goods and people.
As the deal was struck on Christmas Eve, UK Prime Minister Boris Johnson communicated it as a present for the country. While not perfect, we certainly think it’s a reasonable deal and takes away that cliff edge of the United Kingdom exiting without a trading relationship for goods. There are nuances and other areas still to negotiate, but the major issue surrounding trade—EU fishing rights to British waters—is now behind us.
While fishing isn’t a large contributor to the UK’s gross domestic product (GDP), it is symbolic, and became a political issue. The new deal outlines a five-and-a-half year transition period wherein 25% of EU fishing rights off UK waters will be transferred to the UK’s fleet—after that, there will be annual discussions to determine quotas.
While fishing rights are still subject to future negotiations, financial markets reacted positively to the news of the deal—the British pound strengthened, and the UK stock market rallied amid the removal of uncertainty. It’s also good news for UK corporate credit, because it removes a destabilising issue. UK gilts haven’t sold off as much as we might have expected, but that’s because growth is expected to be stunted for some time due to COVID-19.
It’s important to note this deal is only for goods, not services. For services, there will be an equivalence test and each side individually will determine if regulation in the other jurisdiction meets their standards. So, there is still room for adjustments on the services aspect.
While the Brexit deal is the most significant, the United Kingdom has signed an impressive number of trade deals with other individual countries as well—and more are likely in coming months. Going forward, we’ll likely see the UK look at other policy areas where it will want to diverge from Europe.
That all said, there are other concerns that dampen the short-term market outlook—namely the pandemic. COVID-19 hit the UK economy the hardest of the G10 economies—GDP shrank 20% in the second quarter of 2020. Even with a vaccine coming to market, we’ve seen a resurgence in cases, so the lockdowns are not over yet. More restrictions will further reduce UK economic output in the near term.
While the UK’s Brexit saga has largely come to a close, there are still internal issues within the country (including areas of concern for Northern Ireland and Scotland), and still work to be done to get the economy on firmer footing.
Franklin Templeton Key risks & Disclaimers:
Important Legal Information
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as of publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.
Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own professional adviser or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com—Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton’s U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
What are the risks?
All investments involve risk, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. For stocks paying dividends, dividends are not guaranteed, and can increase, decrease or be totally eliminated without notice. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments.
MeDirect Disclaimers:
This information has been accurately reproduced, as received from Franklin Templeton Investment Management Limited (FTIML). No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.
The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.
If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment and may be deducted from the invested amount therefore lowering the size of your investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.
