JPMorgan raises chances of a UK-EU trade deal as talks hit climax

‘Moment of truth’ arrives as both sides demand compromises

European Union chief negotiator Michel Barnier says there are just hours left to strike a trade deal with the UK. Bloomberg

US investment bank JPMorgan has raised the probability of a Brexit trade deal despite warnings from the European Union just hours were left to strike one.

The bank said the chances of a Brexit trade deal had risen to 70 per cent from 60 per cent.

"Our sense is that the likelihood of a deal has moved up from the 60-40 we had as the week began, and we now mark that up to 70-30," JPMorgan analyst Malcolm Barr said in a note to clients.

"In our view, solutions to all of the issues listed above which both sides would be able to live can be designed, even if the process of getting to them is difficult."

EU chief negotiator Michel Barnier told the European Parliament on Friday morning British Prime Minister Boris Johnson would have to grant access to EU vessels to enter UK fishing waters if he wanted a trade deal.

In return, Mr Johnson vowed to plough on with negotiations despite the stumbling blocks.

He said the UK must be able to control its laws and waters.

"Our door is open. We will keep talking but I have to say that things are looking difficult and there's a gap that needs to be bridged," he said.

"We have done a lot to try and help, and we hope that our EU friends will see sense and come to the table with something themselves."

Mr Barnier said "the moment of truth" had arrived for both sides.

"It's the moment of truth," he said. "There is a chance of getting an agreement but the path to such an agreement is very narrow."

Mr Barnier said there were just hours left to strike a deal if it were to be ratified in time for the new year. “We have very little time remaining, just a few hours to work through these negotiations in a useful fashion if we want this agreement to enter into force on the first of January."

He added that the EU respected the UK's desire to rule its own waves, but said that “a credible period of adjustment” had to be given, if EU boats are to be kicked out of British waters despite centuries of tradition of sharing them.

The pound dropped 0.5 per cent against the US dollar to $1.35, reversing gains made in previous days, after Mr Barnier’s remarks.

Mr Johnson told European Commission President Ursula von der Leyen in a call on Thursday that it now looked very likely that an agreement would not be reached unless the EU position changed substantially.

Ms Von der Leyen said progress had been made but bridging the divide in some areas, especially fisheries, would be "very challenging".

While Mr Barnier said the sides were striving for an agreement, the 27-nation bloc would not sign a deal that would undercut its cherished single market of 450 million consumers.

He said the EU needed to be able to impose trade barriers should the UK change its regulations to offer substandard goods on the bloc's market.

For fisheries, he said the bloc also wanted to be free to retaliate by curbing EU market access to UK fish products should Britain squeeze European ships out of its waters.

"That is where we get to one of the most difficult issues at the moment. Fisheries being part and parcel of the trade relationship," he said. "We have to be prepared for all eventualities."

Mr Johnson will ultimately have to decide whether to accept the narrow deal on offer from the EU or risk the economic chaos that walking away would trigger.

Failure to agree a deal on goods trade would send shockwaves through financial markets, hurt the economies of Europe, snarl borders and sow chaos along delicate supply chains that stretch across Europe and beyond.

A rush of lorries heading to the UK from France in anticipation of no deal has already created gridlock at the Channel Tunnel at Calais.

Sebastien Rivera, secretary general of the regional road transport federation, estimated there were "between 15 and 20 hours more waiting than usual" for a return trip.