Brexit to be delayed again, free trade deal will be struck: economists - Reuters poll

Brexit deal could still be reached this week, say negotiators

Britain's departure from the European Union will be delayed, according to the vast majority of economists polled by Reuters who again said the two sides would eventually agree a free trade agreement as the chance of a no-deal exit had fallen.

Michel Barnier, the EU's chief Brexit negotiator, said on Tuesday that reaching a deal on Britain's departure from the bloc before the scheduled date of Oct. 31 had become "more and more difficult".

Barnier told EU ministers that he saw three possible scenarios ahead: a deal with Britain later on Tuesday, another delay to Britain's departure, or a "breakdown" of talks, according to diplomats.

Brexit extension

Prime Minister Boris Johnson, one of the driving "leave" forces in the 2016 referendum in which Britons voted to exit the EU, has pledged to take the United Kingdom out of the bloc on that day with or without a withdrawal agreement.

But his hands may be tied as the parliament has passed a law saying Britain cannot leave without an agreement - and Johnson has not explained how he can get around that.

The chance of a disorderly Brexit dipped in the latest poll to 30% from 35% given in September. Forecasts ranged from 5% to 60%.

"Despite all the excitable commentary, I still believe no deal to be a relatively low-probability event. It will cause significant economic disruption," said Peter Dixon at Commerzbank.

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An EU summit is due to start on Thursday and Johnson and EU leaders will face a tumultuous reckoning that could decide whether the divorce is orderly, acrimonious or delayed again.

All but five of 49 economists who answered an extra question in the Oct. 8-15 poll said Brexit would be delayed again, something Finland's EU affairs minister, Tytti Tuppurainen, said leaders would discuss at the summit.

Almost half the economists answering the question - to which they were allowed to select more than one option - said a general election would be held.

General election

"The most likely scenario at present seems to be a Brexit extension followed by a general election," said John Hawksworth at PwC.

"After that, all scenarios are possible from no deal to no Brexit, but our main scenario assumes that a deal is eventually struck sometime in 2020."

As in all Reuters polls since the referendum, a strong majority of economists said the two sides would eventually settle on a free trade deal.

However moving up to second place this month from third in September was Britain remaining a member of the European Economic Area, paying into the EU budget to retain access to the Single Market yet having no say over policy.

Now in third was the more extreme option of leaving without a deal and trading under World Trade Organization rules. It is not the first time these two options have flipped.

Fourth place was again held by a cancellation of Brexit.

Slow growth

As well as worries about Brexit, Britain's economy is feeling the drag from rising U.S.-China trade tensions, which have weighed on global growth.

Britain's economy contracted in the second quarter and although it appears to have grown between July and September, avoiding a recession, the country's strong labor market is weakening.

Economic growth was expected to average 0.2-0.3% per quarter through to the end of next year, unchanged from September.

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Steve Bray the anti-Brexit protester
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Steve Bray the anti-Brexit protester
LONDON, ENGLAND - JANUARY 08: Anti-Brexit protester Steve Bray (L) and a pro-Brexit protester argue as they demonstrate outside the Houses of Parliament in Westminster on January 08, 2019 in London, England. MPs in Parliament are to vote on Theresa May's Brexit deal next week after last month's vote was called off in the face of a major defeat. (Photo by Jack Taylor/Getty Images)
Anti Brexit protester Steve Bray shouts a comment against Boris Johnson in Westminster as inside Parliament the Tory leadership race continues on 17th June 2019 in London, England, United Kingdom. (photo by Mike Kemp/In Pictures via Getty Images)
(left to right) Andy Wigmore and Leave.EU founder Arron Banks are confronted by anti-Brexit campaigner Steve Bray as they leave the Houses of Parliament in Westminster, London. Picture dated: Wednesday March 27, 2019. Photo credit should read: Isabel Infantes / EMPICS Entertainment.
Vince Cable, leader of the Liberal Democrats and his wife Rachel Smith pose with Anti-Brexit protester Steve Bray after a news conference following the results of the European Parliament elections, in London, Britain May 27, 2019. REUTERS/Hannah Mckay
Vince Cable, leader of the Liberal Democrats and new Members of the European Parliament Irina von Wiese, Dinesh Dhamija and Luisa Porrit pose with Anti-Brexit protester Steve Bray during a news conference following the results of the European Parliament elections, in London, Britain May 27, 2019. REUTERS/Hannah Mckay
Anti-Brexit protester Steve Bray demonstrates outside the gates of Downing Street, as uncertainty over Brexit continues, in London, Britain May 7, 2019. REUTERS/Henry Nicholls
Anti-Brexit protester Steve Bray demonstrates outside Labour Party's headquarters, as they hold their National Executive Committee meeting, in London, Britain April 30, 2019. REUTERS/Toby Melville
Mark Francois (left), Conservative MP for Rayleigh and Wickford, and the vice-chairman of the European Research Group (ERG), in conversation with anti-Brexit campaigner Steve Bray at College Green in Westminster, London.
REFILE - REMOVING EXTRA WORDS Anti-Brexit protester Steve Bray is seen outside the Houses of Parliament in London, Britain, April 8, 2019. REUTERS/Gonzalo Fuentes
Britain's Conservative Party MP Jacob Rees-Mogg walks as anti-Brexit protester Steve Bray demonstrates outside the Houses of Parliament in London, Britain, April 3, 2019. REUTERS/Peter Nicholls
(right) Dominic Grieve MP is confronted by anti-Brexit campaigner Steve Bray on his way to the Houses of Parliament in Westminster, London. Picture dated: Wednesday March 27, 2019. Photo credit should read: Isabel Infantes / EMPICS Entertainment.
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The median probability of a recession in the next year fell to 30% from 35% given last month but the chance of one in the next two years held steady at 35%.

With the trend in pay growth weakening, something closely watched by the Bank of England, and Brexit uncertainty swirling, no change to Bank Rate from 0.75% was expected until the second half of 2021, the wider poll found. None of the 77 economists polled expected a change on Nov. 7.

"We do think, however, that interest rates would also be cut if there were one or two more delays to Brexit. Prolonged Brexit uncertainty would cause both firms and households to continue putting off spending," Capital Economics said in a note to clients.

The Bank of England will probably need to cut interest rates if Brexit is delayed again, leading to further uncertainty, rate-setter Gertjan Vlieghe said on Tuesday.

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