LONDON (Reuters) - There is a one-in-three chance Britain divorces the European Union with no deal and has to trade under World Trade Organization terms, according to a Reuters poll conducted after Prime Minister Theresa May announced a snap general election.
That 30 percent median likelihood was unchanged from one collected in the days before May’s call on Tuesday for an early election on June 8, saying she needed to strengthen her hand in the divorce talks with the EU.
May’s Conservative Party has a runaway lead over the opposition and if opinion polls are right will win a new mandate for a series of reforms she wants to introduce in Britain - and also a vote of confidence in a vision for Brexit which sees the country outside the EU’s single market.
“May’s surprise announcement of a snap election on 8th June adds another element of near-term political uncertainty as the UK heads into formal Brexit negotiations,” said Paul Hollingsworth at Capital Economics.
“And while an election is likely to deliver the PM a stronger mandate, it does not make a ”hard“ Brexit completely clear-cut.”
The government has two years to negotiate a deal after triggering Article 50 last month that launches the formal divorce process. Failure to seal an agreement on future trade arrangements would force Britain to adopt WTO arrangements, bringing with it a host of new negotiations and complications.
Britain would have to treat everyone the same, whether it wanted to or not, from Russian exporters to Brazilian lawyers to U.S. advertising firms. And that includes its former colleagues, suppliers and clients in the EU.
So far there is little clarity on what tone the talks will take but concern over immigration from other EU member states was a major reason behind the leave vote and May has said she will respect those fears by halting freedom of movement. Such a line would probably lead to denial of full and free guaranteed access to Europe’s single market.
“If she wins the election, she may find it easier to pursue a tough stance in talks with the EU. This could add to the risk of a harder Brexit,” said Kallum Pickering at Berenberg.
According to previous Reuters polls a hard Brexit would cause the most damage to Britain’s economy but the latest survey, conducted from April 7 to 19, said growth would be 1.7 percent this year and 1.3 percent next, a tick faster than a March poll said.
Growth in 2016 as a whole was 1.8 percent, the strongest among all Group of Seven rich nations bar Germany, defying earlier expectations for a sharp slowdown.
The pound is down over 10 percent against the dollar since the referendum, which has proved a boon for Britain’s exporters but has hit consumers who have had to pay more for imported goods. Its trajectory will depend on how negotiations pan out.
With prices rising, inflation will outstrip the Bank of England’s 2 percent target and wage growth this year. It will average 2.7 percent in 2017 and 2.6 percent in 2018, the poll found.
Shoppers, who have shored up the economy since last year’s vote to leave the EU, will feel the pinch this year as wages will only increase by 2.5 percent, cutting their disposable income. Wages are seen rising by 2.6 percent in 2018.
“Short-term pointers indicate that economic growth is slowing, as consumer spending power is hit by higher import prices on the back of sterling’s fall over the past year or so,” said Philip Shaw at Investec.
“At first blush we are not tempted to change our economic or interest rate forecasts following Tuesday’s events.”
To cushion the inflation blow the BoE will not be raising borrowing costs until 2019 at least, the end of the forecast horizon, and unchanged from recent polls. None of the 62 respondents surveyed thought the Bank would act when it announces its next policy decision on May 11.
Interest rates currently stand at a record low 0.25 percent and only one of the nine policymakers voted for an increase last month. However, some others said it would not take much for them to follow suit.
Polling by Indradip Ghosh and Vivek Mishra