UK, European Union Make Progress On Deal Talks

The U.K. and the European Union are reportedly making progress on a deal that would give London access to the EU markets once Brexit is complete.

Reuters, citing two British officials, reported that while talks are progressing, a final agreement hasn’t been reached yet. The deal being bandied about would be based on the existing system of financial markets in the EU known as “equivalence,” which has been seen all along as the deal the U.K. could expect to get out of the EU. Reuters noted that The Times reported a tentative deal has been reached, including on the exchange of data. If that proves true, it would be a concession on the part of the EU and a bit of bending on the “equivalence” rules.

A deal may be necessary to protect the U.K.’s economy if a prediction from Standard & Poor’s proves true. Earlier this week, the credit rating agency warned that Great Britain could be headed toward a long recession if it can’t strike a Brexit deal, and that failing to make a deal might bring Britain into a recession that could last as long as the one sparked by the 2008 financial crisis.

“Our base-case scenario is that the U.K. and the EU will agree and ratify a Brexit deal,” said S&P Global Ratings Head of Corporate Research Paul Watters. “But we believe the risk of a no-deal has increased sufficiently to become a relevant rating consideration.”

As a result, S&P has given the U.K. an “AA” credit rating, a full step below its top “AAA” rating. In addition, failure to reach a deal would likely knock that grade down even further. S&P predicted that Britain would experience a “moderate” recession lasting four to five quarters if a deal is not reached in time, shrinking the world’s fifth-largest economy by 1.2 percent in 2019 and further by 1.5 percent in 2020.

“Most of the economic loss of about 5.5 percent [of] GDP over three years, compared to our base case, would likely be permanent,” S&P said.