GBP jumps amid reports EU could offer UK-wide Customs Union solution

Negotiators working on behalf of the European Union’s (EU) member states as part of the Brexit negotiations are said to be drawing up plans to offer the United Kingdom a UK-wide customs union. Analysts have intimated that the EU could be considering offering Prime Minister, Theresa May this solution to avoid the need for a hard border between Northern Ireland and the Republic of Ireland. The move has been seen by many as a show of compassion and a hand of friendship from the EU towards its British neighbours.

On the news of the possible customs union involving Northern Ireland, pound sterling (GBP) gained strength in the forex markets, jumping more than 0.5% against the US dollar and the euro. It is understood that a bespoke UK-wide customs union with the EU would need to be negotiated outside of the initial withdrawal agreement and signed as a separate treaty. Within the withdrawal agreement, it is said that the EU will agree to make a “commitment” to a UK-wide customs arrangement to be completed during the UK’s transition period.

Despite this positive news emanating from Brussels, it’s still unclear whether this offer would be warmly received by many in parliament. A UK-wide customs union would still restrict the UK from being able to conduct trade deals with the rest of the world, whilst losing its voice in the European parliament. Earlier this month, the PM set out the four key steps that the UK wanted the EU to take to reach a Brexit deal. These included a “commitment to a temporary UK-EU join customs territory legally binding, so the Northern Ireland only proposal is no longer needed”.

Customs has long been a key battleground in the Brexit negotiations from both sides. The UK does not deem it acceptable for the EU to enforce alternative customs arrangements to Northern Ireland than the rest of the UK, claiming that it is tantamount to installing a customs border across the Irish Sea. The European Commission has sought to allay the issues of customs check between Northern Ireland and the rest of the UK, insisting that the technology exists to pre-clear goods away from ports via barcode technology.


"Chris Skidmore and Dominic Raab" (CC BY 2.0) by Policy Exchange

The UK’s Brexit Secretary, Dominic Raab – a prominent Brexiteer – has called on the rest of the Conservative Party to rally around Theresa May to give her the best platform to negotiate in the dying moments of EU negotiations. Raab’s comments come after several Tory MPs insisted they could not accept an extension of the post-Brexit transition period. Former Conservative Party leader, Iain Duncan Smith insisted this would result in the UK paying the EU “tens of billions” more without having a say in how it was spent across Europe. Raab responded by insisting that the “end [was] in sight in terms of a good deal, the prize we want”. A positive future trading relationship between the UK and the EU would have hugely beneficial consequences in the forex markets for sterling; almost certainly seeing the pound return to its pre-2016 referendum values against USD and EUR.