U.K. Prime Minister Boris Johnson still has reason to pursue a trade agreement with the European Union despite his threat to walk away without one, according to Goldman Sachs Group Inc (NYSE:GS).
A messy breakup would leave Johnson facing a “triple threat” to his leadership from a stronger Scottish National Party that favors independence, a more popular head of the opposition Labour Party and “a crucial test of competence in the recovery from Covid-19,” Goldman Sachs economist Adrian Paul wrote in a report Monday.
Ending the transition period without a new trade deal in place at the end of the year is becoming more likely. Johnson insists he’s willing to accept that outcome and the economic disruption that comes with it rather than compromise on what he sees as the core principles of Brexit.
Parliament is also preparing legislation that aims to reduce the power of last year’s withdrawal agreement on issues such as state aid, according to a person familiar with the plan.
“This U.K. government might ultimately decide that minimal market access is a price worth paying for maximal regulatory autonomy,” Paul wrote. “From a political perspective, however, the allure of a Brexit deal before the end of a difficult year will be hard to resist.”