By Jonathan Cable
LONDON (Reuters) – The likelihood of Britain and the European Union failing to agree a trade deal by the end of the year has jumped in the past month as negotiations have all but stalled over fisheries and state aid, according to a Reuters poll on Wednesday.
Britain left the EU in January and a transition period is due to expire at the end of this year so the clock is ticking for the two sides to reach agreement on their future relationship.
British Prime Minister Boris Johnson has repeatedly said he will not ask for any extension, despite the economic havoc wrought by the coronavirus pandemic. On Wednesday, London threw Brexit talks into chaos by announcing draft legislation that explicitly acknowledges some of its provisions would break international law.
The bill, which the government said would break international law “in a very specific and limited way”, has contributed to concerns that Britain could be forced to leave the EU single market with no agreement on trade.
According to the Sept. 7-9 Reuters poll, the chance that the two sides will fail to reach a deal has jumped to 40% from the 30% given in an August poll. The poll was taken before the announcement, suggesting the reading may now be higher, and the highest forecast was already 65%.
“The comfortable timetable, whereby a deal is agreed this month, signed off at the European Council in mid-October and then enshrined into law in Q4, looks in doubt,” said Elizabeth Martins at HSBC.
“It may well be that there ends up being a less-than-comprehensive deal, or even no deal at all.”
But as in all Reuters polls since the June 2016 referendum decision to leave the EU, the latest survey said the most likely outcome was still some form of free trade agreement.
“As seen often in politics, when there’s a will, there’s a way,” said Jordan Rochester at Nomura.
“If for some reason a deal is not reached in October but discussions were closing in on a solution, then politicians will likely find a way to rush a treaty through in December.”
BOUNCEBACK
Britain has suffered the largest death toll in Europe from the coronavirus pandemic, despite a lockdown that forced businesses to close and citizens to stay home to try to prevent contagion.
That shutdown meant the economy shrank a record 20.4% last quarter, from the previous quarter. But it is likely to expand 15.8% this quarter as some restrictions have been relaxed, according to the Reuters poll.
For all of 2020, the economy will contract 10.0% but expand 6.1% next year, according to the median poll returns, little changed from the respective -9.7% and +6.2% forecasts given last month.
To support the battered economy, the government has increased spending to record amounts while the Bank of England chopped its lending rate to a record low of 0.10% and restarted its asset purchase programme.
BoE chief economist Andy Haldane this week hailed the incipient recovery.
But fellow rate-setters Michael Saunders, Gertjan Vlieghe and Deputy Governor Dave Ramsden have expressed concern that the economy might take longer to recover than the BoE’s most recent forecasts indicate.
None of the 69 economists polled expected the Bank Rate to change when the Monetary Policy Committee meets on Sept. 17.
However, 22 of 25 respondents to an additional question said the Bank would extend its quantitative easing programme, indicating that it would probably add another 100 billion pounds, most likely in November.
“The Bank of England will ultimately decide that it has a further role to play in helping the economy build a sustainable recovery amid likely still challenging and uncertain conditions,” said Howard Archer at EY ITEM Club.
No change in the Bank Rate was predicted until at least 2023.
(For other stories from the Reuters global long-term economic outlook polls package:)
(Reporting by Jonathan Cable; Polling by Sarmista Sen and Swathi Nair; Editing by Kevin Liffey)
