Welcome to thoughts on the market and happy new year to all of you. I am RezaMovadam

Mowo Stanley's Chief Economic Advisor. Along with my colleagues we bring you a variety of market perspectives. Today I'll be talking

about the economic and market implications of the UK-EU Trade and Cooperation Agreement.

It's Tuesday, January 5th at 4 p.m. in London.

As the new year begins, Brexit is finally a reality.

On January 1, after almost five decades of membership, the UK left the European Union's single market and customs union.

London and Brussels did manage to negotiate an amicable divorce by striking a free trade agreement at the last minute.

But that said, even amicable divorces can leave broken crockery on the floor.

So let's look at the key elements of this agreement.

Importantly, the deal preserves tariff-free, quarter-free trade for goods between the EU and the UK,

as long as the two sides do not undercut each other, for example through government subsidies or more lacks environmental standards.

This is a more ambitious trade deal with respect to goods than the EU has sealed with other countries.

It will help avert chaos at UK-EU borders and soften the economic impact of Brexit.

But tariff-free trade is not frictionless trade.

Businesses will still be hit by significant regulatory and border checks.

The hidden costs of such non-tariff barriers can range from a couple of percentage points in, say, construction to 15% in chemicals and could render EU trade

unprofitable for certain sectors and smaller firms.

But where the deal probably falls short is on trade-in services. This is significant for the UK

because services account for some 40% of total exports to the EU and in contrast to a deficit in goods trade, the UK runs a large

services trade surplus with the EU, particularly in financial services. Why did the UK opt to exclude the economically important services trade from the deal?

The reason lies in the UK's desire for maximum independence and sovereignty, a key objective of Brexit.

The political imperative of taking back control outweighed the economic benefits of maintaining alignment with the EU rules and

...