JPMorgan lifts likelihood of Brexit deal to 70%

The likelihood of a Brexit deal getting done this week has moved up to 70/30 from 60/40, JPMorgan said in a note on Friday.

JPM said the EU and the UK appear to have made significant progress on several of the key issues preventing agreement. The outstanding issues have become "more narrowly defined", it said, adding that despite Michael Gove’s statement on Thursday that no deal was likely, the odds of a deal have improved.

It noted that:

• On the level playing field, the UK has reportedly accepted that the Treaty will contain commitments to maintain fair competition which extend beyond non-regression clauses. As a result there will be a rebalancing mechanism which allows divergences from the level playing field to be addressed including via the imposition of tariffs. The details of how that mechanism will work have not been reported but it has been suggested that the EU will retain the ability to act unilaterally in some circumstances.

  And how the UK’s own body regulating state aid decision will operate and fit in to the agreement is also contentious.

  The EU has also sought to keep spending financed by its post-pandemic recovery fund exempt from the state-aid restrictions in the agreement. The UK objects to this on the grounds its own spending in the space would not be exempt.

• On governance, it is reported the UK has accepted the idea of cross retaliation in some circumstances. This refers to the ability of one side to action in one area because of a breach of the agreement in another. For example, placing tariffs/restrictions on exports of services because of the lack of level playing field in autos.

  The EU is reportedly pushing for the ability to link tariff-free trade in goods to the continuation of access to UK fishing grounds and the UK is resisting.

• On fishing, there is reportedly agreement on how the UK will handle a revised definition of “links to the UK” which foreign companies who have purchased UK fishing quota in the past will have to meet. But on the broader issue of the extent of changes to fishing quotas and the timeframe of their implementation, agreement has not been reached.

"In our view, solutions to all of the issues above which both sides would be able to live can be designed, even if the process of getting to them is difficult," JPM said.