Brexit: the pain points and a striking winner

After 5 weeks of Brexit, a careful assessment can be made of how well the trade agreement is working in practice. It is already clear that European controls in the Irish Sea and crustacean exports are a big problem for the British. Nevertheless, the pound is making good progress.

No divorce is completely smooth and completely painless. In fact, in the case of Britain's departure from the European Union, it took more than three years of negotiations and mud-slinging to break up. Just before Christmas, both parties reached a trade agreement. But if you leaf through the British newspapers, you will regularly read that the quickly cobbled together agreement is not perfect.

A good example is the safety net in the Irish Sea. In order to prevent harmful animals, plants or other matters from entering mainland Ireland, the EU will soon be allowed to carry out unexpected checks on transport between the British mainland and Northern Ireland. It is painful for Great Britain to allow European inspectors into its own territory even after Brexit. 

Northern Irish Checks and Scottish Crustaceans
It gets even worse, since those inspectors are allowed to examine everything from potted plants to meat products and pets. Initially, the intention was to draw up a small list of vulnerable goods, but there was no time for that during the negotiations.

Not everyone in Scotland is equally happy with the Brexit agreement. For example, much stricter rules apply to the export of crustaceans to the EU. The British government has already implemented a support package to prevent Scottish mussel and oyster fishermen from going bankrupt.

happy fish
Jacob Rees-Mogg, the government representative in the House of Commons, does not take these problems too seriously. "The most important thing is that we have our fish back," he said during a discussion in parliament. "They're all British again now. And that's why they're better, happier fish."

Rees-Mogg is not entirely right, however. European fishermen have lost only a quarter of their fishing quota in British waters, according to the Brexit agreement. Negotiations on this will not be resumed until 2026. Initially, British negotiators are aiming for a 60% reduction in fishing quotas.

Striking winner
Besides the fish, the pound is also a striking winner of the first month of Brexit. The currency has appreciated by 2,5% against the euro since the turn of the year, to its highest level since May 2020. This rebound is partly due to the feared chaos at the border.

But at least as important is that the British are tackling the corona pandemic a lot more decisively than is happening on the European mainland. The country is on track to have vaccinated more than 15 million residents by mid-February. That is almost a quarter of the population. Because the most vulnerable groups are then protected against the virus, a reopening of the economy is quickly approaching. We in the Netherlands can only dream of that for the time being. Thanks to Britain's economic corona lead, the pound is keeping the wind at its back.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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