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ANALYSIS: What to watch out for as Brexit negotiations begin

But as Davis stepped into the EC’s sprawling cruciform office block in Brussels’ dreary European quarter, the mood on markets felt sober.

The EU’s chief negotiator Michel Barnier reportedly handed Davis a hiking stick as the duo exchanged pre-talks gifts, with Davis reciprocating with a hiking book.

But with the recent UK election result seen as a rejection of the government’s “no deal is better than a bad deal” mantra, it may now difficult for Davis to tell Barnier to “take a hike” if the deal on the table looks bad for British business.

So as we prepare for 22 months of sketchy reports, squabbling and speculation from Brussels, how can investors separate the wheat from the chaff and make the best decisions?

One of the highest-profile debates in Brexit has been around the tariffs that could be applied to UK exports into the EU – and vice versa, post-Brexit.

There would be a fall back on World Trading Organisation default tariffs under a hard-Brexit “no deal”, making exports more expensive.

But Edward Smith, asset allocation strategist at Rathbones, says the focus on tariffs may be a red herring.

Tariffs weighted across all industries would average at 3%, more than outweighed by the cost-cut for EU clients thanks to the 15% fall in sterling since the Brexit vote, he said. 

Transport and vehicles, textiles, and farming and agriculture would likely face higher tariffs under a ‘hard Brexit’, according to Smith.

“Our biggest sector export to the EU is in the chemicals industry, and the tariff there would only be about 2%,” he said.

tom@ybc.tv

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