Reuters poll place chances of hard Brexit at 25%

The poll makes an interesting read on the possibilities facing Britain after March 2019.

According to the results of a Reuters poll, there is a 25% chance that Britain will leave the European Union in March 2019 without a Brexit deal. The poll also founds that the Bank of England will wait after Brexit before it raising interest rates.

British Prime Minister Theresa May is struggling to negotiate what she terms as ‘business-friendly Brexit’ to her own party as well as citizens of a divided country.

When asked on the probability of cliffhanger Brexit, wherein Britain leaves the EU without a deal, the median forecast in the poll remains unchanged from the August estimate – 25%.

“The chances of the UK leaving the EU has undoubtedly risen recently, and we have become less confident of an orderly exit,” said Howard Archer at EY ITEM Club. “Nevertheless, we still think it is more likely than not that the UK and EU will come to a deal, although it could very well be uncomfortably late for ratification by March 2019.”

While the possibility of a deal is likely, the chances of recession continues to be remote. The likelihood of a recession in the coming year was 15%, down from 20% in July; chances of a recession within two years however are at 25%.

Despite the short number of months before Britain departs, there is little clarity as to how Britain will trade from April 2019; compounding this problem is an escalation ins the global trade.

British manufacturers had their weakest month in over two years and export orders have suffered a decline in August, in what could be an indication of an economic slowdown midst a slowdown in global trade.

Despite this slowdown, the poll found that the Bank of England is likely to raise lending rates soon after March and will add 25 basis points to take it to 1.0%. The rate is likely to stay there until another 25 basis points is added in 2020.

Incidentally, inflation in Britain has jumped following the Brexit vote. A large part of it can be traced to the falling value of the sterling. It is not expected to fall back to the central bank’s 2% target until the end of 2019.

When asked on when the Bank Rate would reach 1.5%, the earliest date that was given was 2020.

“It is likely to be a slow haul on rates with the BoE proceeding cautiously in the face of Brexit-related uncertainty,” said Peter Dixon at Commerzbank. “Getting to 1.5 percent as quickly as possible may make sense on the basis that it gives the BoE more policy flexibility.”

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