Hard Brexit at year-end may be as damaging as no-deal Brexit - ECB's Knot

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AMSTERDAM (Reuters) - A hard Brexit at the end of 2020 remains a possibility and could cut deep into foreign trade, much as if Britain were to leave the EU without a deal, European Central Bank policymaker Klaas Knot said on Wednesday.

Britain is due to leave the bloc on Jan. 31 and the sides will then have until the end of the year to negotiate a new trade relationship - a short period given the complexity of the discussions.

“In economic terms there may be little difference between a no-deal Brexit that could have occurred on the 31st of January, and a hard Brexit that could still occur at the end of 2020,” Knot, the head of the Dutch central bank told a conference.

“This would happen if the EU and the UK are unable to agree on a timely trade deal. And if there is no mutual consensus on extending the transitional period beyond 2020,” Knot added.

British Prime Minister Boris Johnson will tell European Commission Chief Ursula von der Leyen on Wednesday that Britain will not extend the transition period beyond December and is not seeking a new relationship based on alignment with existing rules.

Knot argued that trade between the EU and the UK may drop by an average of 20% in the years after a no-deal Brexit and noted that even if a trade deal is agreed by the end of the year it is unclear if it would cover the huge services sector.

“In practice much would depend on how far the UK is willing to align with EU regulation post-Brexit. I think the case for this is strong, for example in relation to financial services,” Knot said.

Reporting by Balazs Koranyi; Editing by Alison Williams and Hugh Lawson