Reuters poll: Britain's Brexit divorce skills get thumbs down - economists

By Jonathan Cable

LONDON (Reuters) - Britain's government has handled negotiations with the European Union over its departure from the bloc poorly, according to all economists in a Reuters poll, who did however say there was just a one-in-five chance of a disorderly Brexit.

In June 2016, Britons surprised the world by voting to scrap the more than four-decade-old trading and political partnership, and in March last year Prime Minister Theresa May started a two-year countdown to departing the EU.

But May has struggled to unite her cabinet, and major differences remain over the process between London and Brussels.

Asked in the May 16-22 poll to rate the British government's performance on a scale of one (good) to ten (bad), the 30 economists overwhelmingly gave a negative rating. Many scored it at nine or ten, and the best it achieved was a neutral five.

"The negotiations have been a shambles, primarily because the government opted to implement a strategy which was not on the ballot paper and gave insufficient thought about how to implement it prior to triggering Article 50 (to launch the Brexit process)," said Peter Dixon at Commerzbank.

Still, the chance of a disorderly departure, with no deal agreed by the end of March 2019, was put at 20 percent, the same as in last month's poll.

Instead, as in all Reuters polls since the 2016 referendum, an EU-UK free trade agreement was picked as the most likely outcome of talks.

Second most likely was European Economic Area membership, under which Britain would pay to maintain full access to the EU Single Market, followed by leaving without a deal and instead trading under basic World Trade Organization rules.

Those two options have flipped since the question was asked in March, suggesting more chance of a softer Brexit, but they are closely split. Brexit being cancelled, with Britain staying in the EU, was once again far and away the least option.

WILL THEY, WON'T THEY?

In the April 18 poll, almost all economists predicted the Bank of England would raise borrowing costs this month, only for them to perform the biggest turnaround in Reuters poll history two weeks later, when only a handful expected a May rise.

Dovish comments from BoE Governor Mark Carney, together with a slew of downbeat data suggesting Britain's economy is barely growing, convinced respondents the expected 25 basis point increase to 0.75 percent would now happen in August.

Medians in the latest poll of over 70 economists also suggest an August increase, but over 40 percent of them expect no change then either. A second rise to 1.0 percent is predicted just after Britain is scheduled to leave the EU next March.

"Assuming that economic activity bounces back in the second quarter and CPI inflation proves stickier over the coming months than it did in Q1, we expect the Bank of England to deliver a quarter-point increase in interest rates at the August meeting," said Nikesh Sawjani at Lloyds Bank.

Preliminary data showed Britain's economy grew just 0.1 percent in the first quarter. It will expand 0.4 percent this quarter but then only 0.3 percent per quarter through to the end of next year, the poll found.

Following the Leave vote, sterling <GBP=> fell and sent inflation soaring. Inflation has since fallen faster than the central bank expected yet the latest poll said it won't be at the Bank's 2 percent target until towards the end of next year.

But wage growth is expected to outpace price rises across the forecast horizon.

(Polling by Shrutee Sarkar and Aisha Sheth; editing by John Stonestreet)