Theresa May faces five key challenges as she embarks on the negotiations for the UK’s exit from the EU, according to the ratings agency Fitch.

As the first country ever to seek a divorce, Fitch said the UK had no established path to copy and that the fraught period since the referendum in June was likely to give way to an even more combative period.

The report – titled Now Comes the Hard Part – said the potential obstacles to a deal were:

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Once the government triggers article 50, it has two years to conclude a deal. May has said she would like a comprehensive free trade deal with the EU after Britain leaves but Fitch warns that “the UK will not be in full control of the negotiating agenda, and specifically the order in which issues will be addressed”. It adds that two years is likely to be too short to negotiate a trade deal, especially since other issues will have to be settled first. A transition deal is seen as possible, but with the risk that this will make the talks even more protracted.

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EU negotiators have made it clear that they want the UK to negotiate a divorce “settlement” before anything else is discussed, with a bill of €60bn mooted for past spending pledges and staff pensions. Fitch says the UK will dispute the size of the bill but may have to settle quickly in order to get on to more “contentious and important issues”, even though this would be portrayed as an “early and unnecessary concession”.

Scotland

On the day that Nicola Sturgeon called for a second independence referendum, Fitch said meeting Scotland’s demands for continued access to the single market made the negotiations between the UK and the EU more complicated. The threat of Scottish independence “raises the stakes in how the UK government deals with any Scottish requests, and will require policymakers’ careful attention when government resources will already be stretched”.

Disunity

Fitch says the UK is not entering the talks speaking with one voice. The ratings agency notes that there are conflicting views about the best outcome of the negotiations. It warns that in the midst of negotiations, open debates inside the UK about the way ahead could be exploited by the EU side.



“It may be of some comfort that the EU will be subject to similar internal disagreements, but the upshot of this is likely to be delays in formulating negotiating positions — an unfavourable outcome for the UK,” Fitch said.

Expectations

The final challenge facing May, according to Fitch, is to manage expectations and deal with the inevitable uncertainties that will arise. Financial markets will respond badly when the talks are not going well and domestic opponents of the government will blame May’s negotiating approach if the economy fares badly. The risk is that public opinion turns against Brexit, lending support for either a greater role for parliament in approving the final negotiated agreement or another referendum.