Still one-in-four opportunity of Britain leaving EU without deal, says economists

There is still a one-in-four chance Britain and the European Union part ways in less than six months without reaching a deal, according to a Reuters poll taken as EU leaders prepare to meet in Brussels later this week.

There is still a one-in-four chance Britain and the European Union part ways in less than six months without reaching a deal, according to a Reuters poll taken as EU leaders prepare to meet in Brussels later this week.

The stubborn problem of resolving the United Kingdom's post-Brexit land border with Ireland thwarted an effort over the weekend to clinch a deal before this week's EU summit as negotiators admitted defeat after marathon talks.

Both sides want to finalise talks by mid-November to give parliaments in London and Brussels time to approve a deal before Britain otherwise crashes out in March, an outcome that would plunge businesses and millions of citizens into a chaotic and costly legal limbo.

British Prime Minister Theresa May faces stiff opposition at home and abroad to her plans and is struggling with deep divisions in her own party. Boris Johnson, her former foreign minister and figurehead of Britain's Brexit campaign, said talks were "now entering the moment of crisis".

May said on Monday she continues to believe a deal is achievable and real progress had been made in recent weeks on both the withdrawal agreement and future relationship. She also said progress had been made on Northern Ireland, the UK's only land border with the EU.

When asked what probability they attached to the likelihood of a disorderly Brexit - where no divorce deal is reached - economists questioned largely before the talks hit an impasse gave a median 25 per cent, unchanged from a September poll. The highest forecast was 80 per cent.

"A deal is still more likely than not," said Kallum Pickering at Berenberg. "At any rate, the range of possible outcomes remains wide. But then again, did anyone seriously think this would be a walk in the park?"

The most likely eventual outcome is the two sides reaching a free trade agreement, the poll taken Oct. 9-15 found, as has been predicted since Reuters first began polling on this two years ago.

In the second spot was left without an agreement and trading under basic World Trade Organization rules. Holding in third place was Britain belonging to the European Economic Area, paying to maintain full access to the EU's single market.

Keeping its position as least likely was Brexit being cancelled. No respondent pegged this as most likely.

HOLDING PATTERN

With little clarity as to how Britain will part ways with the EU, the respondents did not expect the Bank of England to adjust monetary policy until after March's departure.

They forecast that it would lift the Bank Rate by 25 basis points to 1.0 per cent in the second quarter of next year and follow that up with a matching increase in early 2020.

British inflation jumped after the Brexit vote, mostly driven by a slump in sterling, and is not expected back at the BoE's 2 per cent target until late next year. It will average 2.5 per cent this year and 2.1 per cent next, the poll said.

Growth will remain robust, albeit slower than expected for Britain's peers. The UK economy is predicted to expand 1.3 per cent this year, 1.5 per cent in 2019 and 1.6 per cent in 2020, the poll of over 80 economists found.

When asked about the chance of a recession in the coming year, economists collectively gave it a relatively low 20 per cent. That rose to 25 per cent when asked about the coming two years.

"Unless the Brexit negotiations collapse, the likelihood of a full-blown recession remains low," said Peter Dixon at Commerzbank.

(With inputs from agencies.)