Around midday today the EU heads of state (the EU Council) formally agreed that enough progress has been made on phase 1 of Brexit negotiations (the 'divorce' details) to move to phase 2 (agreeing a transition and future relationship). In itself this is good news but a read of the full statement agreed by the Council shows a more mixed picture for the UK and for business.
As it is Christmas jumper day and the date of the royal wedding has just been announced I will keep things light and start with the good news.
The EU Council supports the idea of a transition period and re-affirms that during this period (around two years) for all intents and purposes nothing will change: the UK would remain in the single market and customs union and would adopt any new EU rules agreed during this time; the only difference is that the UK will no longer have a vote. The EU Council also confirms that the UK will nonetheless be deemed to have left the EU during this transition so will be free to finalise a trade deal with the EU (and by implication will be free to negotiate trade deals with third countries).
That's the good news. Such a transition would give business certainty of no change in market access up to March 2021 and would allow two years for agreeing free trade deals with third countries (arguably not long in the world of trade negotiations, but better than nothing).
OK. Now for the not-so-good news.
Talks on the transition won't start immediately in January. The Council states that the EU divorce agreement (the 'withdrawal agreement') needs to be translated into a legal agreement (it is more of a memo at the moment) before they will start phase 2 negotiations.
It is still possible that the UK and EU will reach a legal agreement on transition by March; but timing now looks very tight and we may well have to wait longer. Many businesses have consistently said they really need confirmation of a transition period by March 2018 if they are to avoid implementing contingency plans for a hard Brexit. Businesses in financial services have already started and the absence of any guarantee today means most will now press on with restructuring their operations to ensure they can continue to serve EU and UK customers come what may in 2019.
Nor will talks about the future trade relationship between the UK and EU start in January. The EU Council statement expressly says that the UK needs to provide more clarity on what it wants before the EU will agree to start discussing this. Talks about the future trade relationship seem unlikely to start before March 2018.
The EU statement also seeks to manage UK expectations about what a trade deal might look like. Translating the diplomatic language, the statement basically says: "don't expect a special deal; given you have said you want to leave the single market all we can offer you is what we agreed with Canada." It also makes clear that the best that can be agreed by March 2019 will be a 'framework' or principles on the future trade relationship; the detail will need to be agreed in 2019 and 2020.
So we are still in the foothills of the EU-UK Brexit negations. There is a long way to go yet and the negotiation timetable does not necessarily fit with businesses' own timetables for taking operational decisions. As ever, it is important to plan what you would need to do when in a worst case scenario and know when you would need to start implementing plans regardless of where negotiations have got to...
The experience of the past few months suggests, in fact, that the way ahead will be extremely fraught and the prime minister's goal of a full agreement by March 2019 is hopeful, rather than grounded in reality. But for today, at least, Mrs May's team can be satisfied, if only for a moment or two, that they have managed even to come this far.