Dec. 11: We think that a United Kingdom–European Union trade deal narrowly remains the most likely outcome of [Brexit] talks, but time is not on anyone’s side. A deal would unlock some modest upside for sterling, but a lack of risk premium means there is potential for plenty more downside should talks end without an agreement. In short:
The issues—Fishing is unlikely to be the issue that derails talks; a level playing field, and how to govern the deal, remain thornier issues.
The decision—Negotiators themselves probably don’t hold the key to a deal now. The EU is unlikely to meaningfully shift its stance, and the political decision in London hinges on a wide range of factors. We still think a deal is narrowly more likely than not.