Bloomberg: Brexit threatens to increase inflation and reduce investment in Britain… Is there a breakthrough?

site said Bloomberg (Bloomberg) The American exit of Britain from the European Union (Brexit) threatens to increase the rate of inflation and reduce investment in the United Kingdom, as it may cause an increase in the interest rate of the British Central Bank, and it will be “one of the first victims” of the trade deal between Britain and the United States.

This comes at a time when Britain and the European Union agreed on Friday to continue efforts to resolve the dispute over trade with Northern Ireland, but gaps remain between the two parties.

And the British government threatened – adds Bloomberg site – to activate Article 16 of the protocol agreed with the Union regarding Northern Ireland, at a time when economists warned that retaliatory measures from Brussels could harm exports and investments and deal another blow to the pound sterling.

And the site talked about the possibility of a shock if London chooses to use this clause that allows it to suspend some of the agreed trade rules when it left the union, and it is also likely that the matter will also affect the Bank of England’s calculations on when to raise interest rates and address high inflation.

The two parties agreed in October 2019 to a Brexit deal for Northern Ireland known as the “Protocol” that leaves the latter in the European single market for goods while those arriving in Northern Ireland from the rest of the United Kingdom are subject to scrutiny and control.

Article 16 of the protocol sets out the process for taking unilateral “preventive” measures if one of the parties concludes that the deal leads to serious practical problems or leads to a diversion of trade.

The effect of the pound sterling

As for the pound, the market’s reaction to the activation of Article 16 will depend on how the British government acts. If it chooses to “rip the Northern Ireland protocol,” it could lead to a rapid 5% drop in the value of the pound, according to Derek Halpini, head of European global markets research at MUFG Financial Group (MUFG).

Analysts at “Bank of America” ​​also confirm in a report that the market may face in the long term a “more persistent uncertainty and volatility” outlook with the existence of this particular conflict.

And this weaker currency – according to the site – may push prices higher, at a time when the inflation rate is already above the Bank of England’s target of 2%.

Jagjit Chadda, director of the National Institute for Economic and Social Research, a British think tank, says any new trade disputes could exacerbate the UK’s supply shortfall and cause lasting inflationary pressures.

Business deal in the wind

According to Jonathan Portes, a researcher at the Change Europe group, the European Union may resort to retaliation by applying “rules of origin” controls “more stringently, which will increase the administrative burden on exporters, and it can also eliminate the data sufficiency requirement that facilitates Trading.

The activation of Article 16 of the Northern Ireland Protocol could also lead to a revival of the uncertainty that followed the vote on Britain’s exit from the European Union, which, according to Portes, would raise concern about the postponement of major investment decisions, such as those related to the car industry, which were taken based on the premise The trade agreement remains in effect.

He adds that “all the EU will have to do is say it will suspend tax-free access to car production if the UK does not comply with the protocol.”

Gerard Lyons, a former economic adviser to Prime Minister Boris Johnson when he was mayor of London, believes that hopes of a trade deal with the United States may be one of Britain’s “first losses” if it chooses to trigger Article 16, and this transatlantic trade deal has long been considered As a potential major prize from Brexit.

Is it a breakthrough?

On Friday, Britain and the European Union agreed to continue efforts to resolve the dispute over trade with Northern Ireland.

“There is a possibility of creating some momentum in our discussions,” David Frost, the British minister in charge of the “Brexit” file, said after meeting with his European counterpart Maros Svkovic in an attempt to avoid a devastating trade war and the collapse of relations between London and the regional bloc.

He pointed out that “there are still significant gaps in most of the issues, which will be discussed in another meeting on November 26 in the British capital, London.”

For his part, Svkovic said, in a separate statement, that there was a “real urgency” on the drugs and urged “continued pressure to succeed in this task.”

The negotiators said they were discussing several key issues that threaten the Northern Ireland Protocol, which is part of Britain’s withdrawal agreement from the European Union.

There are also questions about the use of UK-licensed medicines in Northern Ireland, which is still part of the UK, but under the bloc’s single market rules.

Britain is focusing in particular on amending the agreement to object to the EU’s highest court in Luxembourg having the power to implement it.

London has threatened to activate “Article 16” to suspend aspects of the protocol pending further negotiations if Brussels insists on implementing it before resolving trade issues.

Svkovic said during a virtual meeting organized by the Brexit Institute at Dublin City University on Friday that the Northern Ireland protocol cannot be separated from the broader trade agreement between the United Kingdom and the European Union after the exit known as the Trade and Cooperation Agreement (TCA).

He added that “the two agreements are fundamentally interrelated, and one cannot exist without the other.”

The talks do not cover the issue of fishing, as France is angry that its fishing vessels are fighting for access to the waters of Jersey, a British territory near the French coast.

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