Progress in Brexit negotiation increases the chances of a trade deal between Britain and EU

The outcome of a poll involving 68 economists on the probable impact of on-going Brexit negotiations, makes an interesting read.

With Brexit negotiations showing signs of progress, it is likely that they will probably end in a free trade deal, found the results of a Reuters poll.

News reports have heralded a potential breakthrough in the negotiations between Britain and the EU over a possible agreement over the Northern Ireland border.

This significantly reduces the chances of a cliff’s edge in the negotiations that are scheduled to close by March 29, 2019.

“With the UK ready to honor its full commitments in the Brexit bill, and a good chance that London and Dublin can strike a compromise on the Irish border question soon, we now see a lower risk that the UK and the EU will part company without a future trade deal by the March 2019 Brexit deadline,” said Kallum Pickering at Berenberg.

“UK negotiators would be guilty of a dereliction of duty if they failed to agree a free-trade agreement – or at least to agree talks about talks,” said Peter Dixon at Commerzbank.

As per the poll’s result, the second most likely outcome would be Britain exiting the EU without a deal after which it will come within the jurisdiction of WTO rules.

A third possibility is Britain retaining its membership of its European Economic Area under which it would pay to maintain full access to EU’s single market bloc.

The least likely outcome was Britain reversing its decision to leave the EU.

Just as many economists had predicted, Britain is yet to sink into recession since its historic decision to leave the EU; however, the growth of its economy is set to lag behind those of its peers.

Already, the country is facing high inflation, driven by the sterling’s touching a historic low against a basket of major currencies, since the referendum, which has curtailed the spending power of consumers who had earlier played a big part in driving up economic growth.

Inflation is expected to average at 2.7%, well above Bank of England’s 2% inflation target, which has remained unchanged from November.

Of the 68 economists polled, none expect any policy changes by the central bank, at its policy meeting on December 14.

“With inflation close to peaking and growth likely to remain soft in the near term, we expect the Bank of England to wait until Q4 2018 before raising rates again,” said Dominic Bryant at BNP Paribas.

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