By Jonathan Cable
LONDON (Reuters) – With less than five months left before Britain and the European Union officially part ways, there remains a one-in-four chance the sides fail to reach a deal on the terms of departure, according to economists polled by Reuters this week.
The EU would have to see a breakthrough on Brexit within a week if its leaders are to endorse any deal with Britain this month, several official and diplomatic sources in Brussels told Reuters on Wednesday.
Britain’s land border with Ireland has proved a major stumbling block between the two sides and with time running out to reach a resolution, the chance of no deal being agreed by March 29 – when the two sides are due to divorce – has held steady at October’s 25 percent.
It has been between 20 and 30 percent since Reuters began asking in July 2017. Forecasts in the latest poll ranged from 5 to 75 percent.
“Both sides have every incentive to ensure that the UK does not leave the EU in a disorderly fashion in March,” said Peter Dixon at Commerzbank.
If Prime Minister Theresa May fails to reach agreement with Brussels – or parliament votes it down – then Britain faces leaving the EU without a divorce deal and thus without a transition period, leading to economic disruption.
Britain and the EU are in the closing stages of talks, British interior minister Sajid Javid said on Thursday but Ireland’s foreign minister tried to dampen expectations a Brexit deal might be imminent.
“The risk of a disorderly Brexit is rising. It looks to be Theresa May’s strategy to postpone decisions until everyone has its back against the wall,” said Stefan Koopman at Rabobank.
“This is a very risky approach, as the complex dynamics in the UK parliament make ratification particularly uncertain.”
Still, the most likely eventual relationship is they settle for a free trade agreement, as has been predicted since Reuters first began polling on this two years ago.
In second place was leaving without an agreement and trading under basic World Trade Organization rules. Holding in third was Britain being a member of the European Economic Area, paying into the EU budget to maintain access to the EU’s single market.
Again, least likely was Brexit being cancelled. No respondent pegged this as most likely.
STEADY AS SHEGOES
While the anticipated post-referendum recession never materialised, economic growth has slowed and is predicted to be 1.3 percent this year, the poll of 70 economists found.
Incorporating their expectations for Brexit, economists’ consensus forecast is for growth to accelerate to 1.5 percent next year and hold there in 2020, still slower than where it was running up to the 2016 referendum to leave the EU. 2019 growth forecasts ranged from 0.5 to 2.2 percent.
“The economy fared better than expected in 2018, after a very weak first quarter, but momentum was slowed by weak investment amid Brexit-related uncertainty,” noted economists at UBS.
“Assuming the UK and EU can strike a Withdrawal Agreement and that Parliament ratifies it in advance of the end-March 2019 deadline, that uncertainty will be alleviated for a time. As a result, we expect GDP to accelerate.”
When asked about the chance of a recession in the coming year, economists have a median response of 23 percent – barely changed from last month. When asked about one within the next two years they said 30 percent.
Inflation jumped in the wake of the June 2016 referendum – mostly driven by a fall in sterling – and is expected to hold above the Bank of England’s 2 percent target until late 2019.
Yet as a deal has not been made respondents mostly said the central bank would wait until at least April before raising borrowing costs by 25 basis points to 1.0 percent.
Policymakers won’t then increase them again until early 2020, when they will add another 25 basis points, the poll said.
(Polling by Sarmista Sen and Sumanto Mondal; Editing by Toby Chopra)