No Brexit Deal Until Next Year, U.K. Officials Say Privately

(Bloomberg) -- U.K. officials don’t expect to clinch a Brexit deal until two months before exit day, increasing the chances of chaos for executives and lawmakers.

European Union chief negotiator Michel Barnier has long said he wants the withdrawal agreement done by October so that there’s time for it to go to the European and U.K. parliaments for approval before Britain leaves in March 2019. Brexit Secretary David Davis has indicated in public that the timetable could slip a bit. But speaking privately, U.K. officials say the real deadline is January.

No Brexit Deal Until Next Year, U.K. Officials Say Privately

The timing is important as any delay would prolong the uncertainty for businesses already desperate to know what trading regimes they will have to operate under come Brexit day in March 2019. And going down to the wire reduces the scope for lawmakers to reject the deal that Prime Minister Theresa May brings back from Brussels. 

Lawmakers have been promised a “meaningful vote” on the divorce deal, but if it comes to them just two months from exit day the vote is more likely to represent a take-it-or-leave-it choice between accepting the deal, or wreaking chaos by crashing out without one.

A spokesperson for the Department for Exiting the European Union said it remains a "shared aim to get this deal agreed by October this year."

Fragile Transition

Any agreement on the transition period, which businesses are relying on to smooth the exit process, won’t become legally binding until the final withdrawal agreement is signed. The U.K. expects an agreement on that grace period at a summit this month, but it will be a political commitment that will only be formalized in the final deal. The EU’s Barnier has underlined that point in recent weeks, as has Chancellor of the Exchequer Philip Hammond.

The pound fell for a second day and traded at $1.3810 early on Friday.

Foreign Secretary Boris Johnson on Thursday said the government is still prepared to quit the talks if the EU refuses to give a good deal, the Telegraph reported. “It doesn’t hold terrors for me and we will do very well under those circumstances,” he said at an event in London.

The two sides are still poles apart in key areas, in particular how to avoid a border emerging on the divided island of Ireland when Northern Ireland becomes home to the U.K.’s land frontier with the EU.

That remains one of the most important stumbling blocks and EU Council President Donald Tusk said on Thursday the Irish issue must be addressed before wider talks can move on. 

“If in London someone assumes that the negotiations will deal with other issues first, before moving to the Irish issue my response would be: Ireland first,” he said. A European diplomat said the U.K. needs to give a strong signal on the border in order for talks to proceed.

There’s also a gaping divide on what the future relationship between the trading partners should look like. The EU is hoping that the U.K. will cede on some of its red lines, and has explicitly left open that possibility. If it does, EU leaders would take another look at their negotiating stance at a summit in June -- by which time the clock will be ticking loudly.

There’s a history of missed deadlines in the Brexit process and Britain’s Davis said in an off-the-cuff comment last year that he expected talks to continue until the last minute. He had to backtrack on those comments after lawmakers complained such an approach would leave them without a say on the final deal.

©2018 Bloomberg L.P.