What's going on?

The United Kingdom and the European Union appear to have reached an agreement on Britain�s �divorce bill� � increasing the likelihood of a transitional Brexit deal that would mitigate economic uncertainty around it leaving the EU.

What does this mean?

As an EU member, Britain had committed to future contributions to the EU budget. After the Brexit vote last June, the EU said there had to be clarity on how much of those payments Britain would honor upon leaving before any discussions on a future relationship could begin. There are still other tricky issues to resolve, particularly the Irish border � but Tuesday�s news is a big step forward for a transitional arrangement (e.g. on trade) when Britain leaves the EU in 2019.

Why should I care?

For markets: The pound jumped as the probability of a �no deal� Brexit decreased.

A significant proportion of Britain�s economy relies on doing business with the EU; right now, Britain�s place within the EU governs how that business is conducted. It would be highly disruptive to the economy if Britain were to leave the EU without a deal on how future trade between the two would go down. With a transitional deal now looking more likely, the better prospects for the UK economy yesterday appeared to push up the value of the pound (remember, investors tend to like to invest in economies where growth is increasing, which involves buying that economy�s currency).


The bigger picture: Political uncertainty in major economies has abated, which is usually good for economic growth.

Stocks around the globe jumped in recent days as the prospects for US tax reform improved. More broadly, the nationalistic election campaigns waged in Europe this year largely failed. Added to this is now a clearer path to a transitional Brexit deal. There�s still plenty of uncertainty � from Merkel�s tenuous position in Germany to a looming Italian election and an anti-establishment US president � but it�s still well down versus 6-12 months ago, and the world economy and stocks appear to be benefiting.