Post-Brexit stance by Brussels is threat of tariffs on UK goods unless rules are complied with

This article is more than 7 months old

This article is more than 7 months old

The pound fell on Monday after Boris Johnson warned that Britain would not accept alignment with EU rules in any Brexit trade deal, while Brussels threatened to put tariffs on UK goods unless he complies.

Sterling sold off sharply after the prime minister and the EU’s chief negotiator, Michel Barnier outlined tough opening positions for post-Brexit trade talks, dipping by more than two cents against the dollar and about a cent against the euro.

The currency dropped by more than 1.3% to trade at $1.30 against the dollar and by about 0.9% to just below €1.18 versus the euro, as business groups warned that any disruption to firms from higher new trading barriers would harm growth in the UK and the EU.

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Jonathan Geldart, the director general of the Institute of Directors, said Johnson’s swing away from prioritising close trade ties with the EU posed concerns for firms.

Warning that companies might need to reboot no-deal Brexit planning if there was less chance of a trade agreement being struck by the end of 2020, when the UK’s Brexit transition period ends, he said: “The UK can’t just stick to red lines; it needs to set out positive, practical steps to what it wants.”

John Allan, the president of the Confederation of British Industry, the leading business lobby group, said the right signals about the UK’s future trade relationship would boost firms’ confidence to invest. However, he warned there was a challenge to ensure that optimism is not “caught in the crossfire of a tough, public negotiation”.

He said: “Talk of a bare-bones deal could pause investment. As the negotiations progress, firms ask the government to take every opportunity to show ambition; building a deal with deep mutual market access while keeping business insight at the heart of their decisions.”

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In the opening clash over trade since Britain’s formal withdrawal from the EU on Friday after almost half a century of membership, Johnson and Barnier outlined competing opening positions at odds with one another.

Johnson said the UK wanted a free trade deal by the end of 2020 without agreeing to match EU rules. However, Brussels warned this would result in reduced access to the EU market for British companies.

Ian Wright, the chief executive of the Food and Drink Federation, warned of disruption to the industry’s supply chains. The EU is the largest source of UK food imports and largest destination for UK food exports in the world.

“Introducing friction into those supply chains will have implications for our largest manufacturing sector and for all food and drink consumers,” he said.