Bank of England reminds banks of ‘no deal’ Brexit risk

Business

In this Monday, March 2, 2020 file photo, European Commission’s Head of Task Force for Relations with the United Kingdom Michel Barnier, right, speaks with the British Prime Minister’s Europe adviser David Frost during the start of the first round of post -Brexit trade talks between the EU and the UK, at EU headquarters in Brussels. Slowed by the coronavirus pandemic and whipped up by a British-imposed deadline, talks between the EU and the UK on a future relationship in the wake of Brexit are struggling to make significant progress. A third negotiation session is drawing to a close on Friday, May 15, 2020 but so far, just over 100 days after the official exit of the UK from the EU, fundamental gaps still exist. (Olivier Hoslet, Pool Photo via AP, File)

LONDON (AP) — The Bank of England is reminding British banks to prepare for the possibility that the U.K. and the European Union will fail to agree on a trade deal by the end of the year, amid few signs of progress in discussions between the two sides.

In a statement Wednesday following reports that its governor, Andrew Bailey, is asking banks to step up their preparations for a “no-deal” scenario, the Bank of England said it is “fundamental” that it prepares the financial system for “all risks that it might face.”

“In performing that role, the Governor meets the leadership of U.K. banks on a very regular basis,” it said.

“As we have said previously, the possibility that negotiations between the U.K. and EU over a future trading relationship might not conclude in a deal is one of a number of outcomes that U.K. banks need to prepare for over the coming months.”

Though the U.K. left the EU’s political institutions in January, it remains within its economic orbit — the tariff-free single market and customs union — until the end of the year.

The country has an option to extend this so-called transition period designed to smooth the Brexit process, but Prime Minister Boris Johnson has insisted he won’t be asking for a delay. Any request has to be made by July 1.

Discussions over a trade deal have made little headway, with both sides arguing that the other is creating unnecessary obstacles. The British government says the EU is being unreasonable on fishing rights, for example, while the EU counters that the U.K. is trying to cherry-pick the best parts of being a member of the bloc.

And that’s raised concerns that the British economy faces the prospect of a ‘no deal’ scenario at a time of acute stress related to the coronavirus pandemic.

Japanese carmaker Nissan joined other businesses in expressing concerns, warning it will not be able to sustain operations at its plant in Sunderland, northeast England, if the negotiations fail to lead to a trade deal.

Nissan’s global chief operating officer, Ashwani Gupta, told the BBC that the company wants to remain in the U.K. but that the business “will not be sustainable” if the current tariff-free arrangement disappears.

“That’s what everybody has to understand,” he said.

Another round of Brexit talks is taking place via video conferencing and is expected to conclude Friday. Johnson is then expected to take part in a summit with EU leaders this month.

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