Following Theresa May's speech in Florence, there had been hopes in some quarters of a breakthrough in the Brexit negotiations, allowing talks to progress beyond the 3 issues which the EU has identified as the focus of the first phase of discussions. Indeed, the EU has broadly welcomed the Prime Minister's more positive tone. However, its chief negotiator, Michel Barnier, has indicated that "we are not yet there in terms of achieving sufficient progress" – "sufficient progress" being the benchmark for the talks to move onto other issues, including, critically, trade and the shape of any transitional arrangement.

Whilst the EU's somewhat rigid approach to the first phase of negotiations is no doubt a source of considerable frustration to the UK negotiators, "sufficient progress" is a phrase which allows for "constructive ambiguity"; in particular, it does not require the talks to have resolved all the first phase issues fully and the final decision on whether it has been achieved will be a political one, taken by the 27 other EU Member States. With that in mind, UK Ministers have been holding discussions with their opposite numbers in a number of other EU Member States and Theresa May met with European Council President, Donald Tusk. His assessment, however, was in line with that of Michel Barnier i.e. that "sufficient progress" has not yet been made. Current sticking points would appear to include:

  • The EU's insistence on a role for the European Court of Justice in relation to citizen's rights (although the UK government has conceded that provisions of the Withdrawal Agreement dealing with citizens' rights should be directly enforceable through the UK courts); and
  • Continued disagreement over what commitments the UK has undertaken during its membership of the EU (and should therefore be required to pay for even after it has left the EU).

In terms of other developments, there was both good news and bad news for the UK government. President Macron of France gave a speech outlining his vision for a reformed EU and said that he hoped there would be a place for the UK within that; this suggests that he continues to see the UK as an important partner, even though it is seeking a different form of relationship in future and clearly does not share the desire of some Member States for greater integration. On the other hand, the outcome of the German election is felt by many commentators to have weakened Angela Merkel's position and may make her reluctant to expend political capital on Brexit – which may be less positive for the progress of the negotiations (although to date, Merkel has given little sign of being willing to intervene and appears to place a higher premium on maintaining unity amongst the 27 remaining Member States).

What happens next?

The fifth round of talks is due to start on 9 October. A meeting of the European Council is due to take place on 19-20 October, at which a decision is expected to be taken on whether "sufficient progress" has been made to enable talks to progress to the next stage. The most immediate issue for business is the lack of clarity over transitional arrangements, which cannot be agreed in full until talks have moved onto the shape of the UK's future relationship with the EU - although according to some reports, the EU may be prepared to broaden the scope of the initial discussions to cover transitional arrangements (even if "sufficient progress" has not been made). This would be a very welcome move because, unless some comfort can be provided by early next year that a transitional deal is more likely than not, many businesses may conclude that they have no option but to put contingency plans into effect for a "no deal" scenario.