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This post is an update to the Quarterly Brexit Report Q1 2018 Executive Summary

We are pleased to announce the update of our Quarterly Brexit Report for Q2 2018. This briefing is a partner piece to the Brexit Scenarios Tool, our interactive market intelligence dashboard available on our website and on Passport. Together, these products help clients to stay informed with the Brexit process as it unfolds, and to understand the impact of different Brexit scenarios on the UK economy, industries and consumers.

Two years on from the UK vote to leave the European Union (EU), negotiations are no closer to a deal on future relations. While the principles of the divorce bill and a transition period have been agreed, the UK has postponed the publication of its White Paper outlining what it wants from a Brexit deal. Progress has been stalled because of divisions in the UK government between hard Brexiteers who want a clean break from the EU, and pro-Europeans who are pushing for a softer exit and more of a say over any final deal. With just four months to go until the October 2018 target for negotiations to end, (to allow time for UK and EU governments to vote on a deal), time is running out.

The UK government is divided over two main options: a Customs Partnership, where the UK will collect tariffs on behalf of the EU, and Maximum Facilitation, where technology will be used to monitor the border instead of a physical presence. A third option has also emerged which would be for the UK to stay in the single market for goods only. The EU has repeatedly warned against “cherry picking” and big questions remain unanswered such as whether the UK should stay in a customs union or if a hard border in Ireland can be avoided.

The conditional agreement about the transition period provided a little more clarity to business leaders for the period beyond Brexit day, but uncertainty continues to cloud the UK’s economy. Theresa May has faced several hurdles as members of her government demand more of a say over the final Brexit deal while businesses are beginning to speak out about the consequences of a hard Brexit. Euromonitor International forecasts real GDP growth of just 1.2% for the UK in 2018, amongst the weakest of the G7, as Brexit continues to dominate the investment environment.

Euromonitor International’s Brexit Scenarios

Euromonitor International’s baseline scenario incorporates the likelihood (55-65% probability) of a Delayed Free Trade Agreement (FTA). The quarterly report examines the impact of a No-Deal Brexit scenario (25-35% probability) on our baseline, alongside the much slimmer prospect of a Light Brexit (5-15% probability). In line with a transition period being agreed, Euromonitor has revised its probabilities for the various Brexit outcomes making a delayed FTA in 2020 the most likely scenario, although a No-Deal Brexit has not been ruled out.

Did you Know?

  • For Danone Group, the high income elasticity of milk alternatives puts it at risk in the Brexit environment. So far, the movement from dairy to more expensive milk alternatives has been gathering pace, but the slowdown in the economy could potentially disrupt that;

  • In the event of a No-Deal Brexit, retailers in Liverpool are expected to face a blow with 4,900 and 9,000 fewer A and B segment households respectively in 2017-2022. Households are likely to neglect mid and high-end products in favour of more frugal spending choices;
  • The most recent trade negotiations between the UK and EU have been focussed on geographic identity protection. The outcome of these discussions will have a significant impact on the alcoholic drinks industry, both on the UK side, such as Scotch, and on the EU side, with products such as Champagne looking to protect their geographic designation against copycat products.

Find out more in our Quarterly Brexit Report for Q2 2018.

For more information contact Head of Countries’ Analyst Media Eghbal or connect with her on LinkedIn.

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