UK-EU row remain unlikely to escalate all the way to tariffs: Fitch

Nonetheless, there is a risk that miscalculation will lead the United Kingdom to trigger Article 16 and that both sides will subsequently fail to de-escalate matters, leading to additional trade barriers and raising the risk of tariffs and further polarisation in Northern Ireland, Fitch Solutions said in a report.

The European Commission sought to address the UK’s concerns in a series of mitigating proposals to the UK in mid-October. London rejected these as insufficient and continues to insists on re-writing the protocol, including a major liberalisation of customs and other checks and replacing the European Court of Justice (ECJ) with an independent arbitration panel.

This would allow the EU to retaliate with a range of measures, depending on how far-reaching the UK moves are and whether they follow other provisions of the wider Brexit deal. This could include the suspension of the entire UK-EU post-Brexit trade deal, resulting in a de-facto no-deal Brexit, Fitch said.

Even without tariffs, UK trade volumes would come under renewed pressure in this scenario. The uncertainty around UK-EU trade regulations would exacerbate other issues faced by UK companies post-Brexit, such as shortages of workers and shipment delays.

At the same time, the UK government has yet to implement customs checks on goods entering the country from mainland Europe (which have been in force on the EU side since January 2021), while several expiring grace periods on other checks as part of the UK-EU trade deal will also continue to weigh on trade, Fitch added.

ALCHEMPro News Desk (DS)