Could the UK-EU trade deal damage UK Stocks? Well, it’s hard to say.
For starters, the EU has long claimed that its initial plans for a Trade Agreement (TPA) with the UK were not overly detailed. In other words, the initial trade deal seemed to leave a lot of the playing field to the UK’s negotiating ability.
Well, at this point in time we’ve got no official notice from the EU of its plans for getting tough on the “tax havens” that are the main sources of income for the UK. The recently released Audit Commission report revealed that the UK trusts it has a zero tolerance policy towards the United States in its International Tax Strategy.
The UK doesn’t appear to have a zero tolerance on the United States in its International Tax Strategy. As a result, it would not have enough capital to be able to finance its obligations under the EU TPA or the agreed British deal.
Thus, with the current state of affairs in the UK, any trade deal or agreement will have an immediate impact on the UK-EU trade negotiations. If the talks do not take a positive turn the price of UK Stocks could fall sharply.
The potential fallout to the EU if it does not have enough capital to make good on its commitments would have an immediate effect on the UK’s reputation in the international business community. If the EU is perceived to be a bully it may not get as much business or investment.
Therefore, if the deal falls through or does not take shape as scheduled, there will be an immediate effect on the UK economy. The severity of this effect will depend on how long it takes for the UK to establish the needed capital.
The potential impact of this will depend on how long it takes for the UK to create the capital. The longer it takes the more damage will be done to the credibility of the UK in the international business community.
Given this is the state of the UK economy it is likely that the EU will be able to take its time in completing its Trade deal. Given the current state of the British economy it will be difficult for the EU to take its time in getting tougher on tax havens and tax evasion.
There will be far too much risk involved in such a process. It would be much better to get the deal done fast as to cause the least possible disruption.
With the “concerns” the UK has with the use of the City for tax avoidance in other parts of the world, the risks are greater for the UK and, therefore, the overall risk to UK Stocks will increase if the EU fails to get tough on tax evasion and avoidance. Now is not the time to get into risky long-term investments.