Likelihood of hard Brexit recedes after UK election — economists

The likelihood of hard Brexit have receded after the UK's general election last week, say economists. (AFP)

LONDON: The chances of Britain ending up outside the single market when Brexit talks are concluded have receded somewhat after last week’s election, although the pound might weaken further against other currencies, a Reuters poll of economists found.
Ahead of the election, Prime Minister Theresa May had been expected to win a landslide victory — an outcome Reuters polls had predicted would be best for both sterling and Brexit talks — but as voting day approached those opinion polls narrowed.
In the end, May’s Tory party failed to win a majority in parliament, prompting calls for her plan to leave the EU’s single market to be watered down and leading some rival lawmakers to demand the Brexit process be delayed.
Droves of newly registered young voters — many of whom voted to stay in the EU — backed the opposition Labour Party, scuppering May’s hopes of a walkover win.
Around two-thirds of the economists polled this week, 33 out of 49, said the chance of a hard Brexit had receded somewhat. Three said it had receded significantly, while eight said there was no change. Five said it had increased somewhat and none said increased significantly.
“The prime minister may have to change her stance and approach to Brexit following the election outcome,” said Nikesh Sawjani at Lloyds Banking Group.
May has two years to reach agreement with the European Union but has repeatedly said she would be prepared to walk away from negotiations without a deal if necessary. But she now might find that more difficult to do.
“The reduced majority of the Conservatives means that the mandate for a hard Brexit just isn’t there anymore,” said George Brown at the CBI.
Concern over immigration from other EU member states was a major reason behind the vote to leave, and May has said she will respect those fears by halting freedom of movement.
That would almost certainly mean no free access for British companies to the EU’s huge single market, likely damaging what already threatens to be weak economic growth.
Almost half of British employers are unprepared for the government’s planned changes to immigration rules after Brexit, a survey from the Resolution Foundation think tank showed on Monday.
Another survey found British business confidence has fallen sharply since the election, while figures showed consumers cut their spending for the first time in nearly four years last month as households turned more cautious.
Having fallen as much as 23 percent after the referendum nearly a year ago, touching a 31-year low below $1.15, in October, sterling is currently trading around $1.266.
On Friday, the pound sank to a two-month low and 26 of 50 respondents said it was likely to fall more in the next few months. Fifteen said there would be no change and nine predicted sterling would recoup some of its losses.
“With markets unduly optimistic about the prospect of a Tory-led coalition, sterling is vulnerable to a further sell-off,” said Joanna Davies at Fathom.
Medians in a Reuters poll of 60 specialists, taken before the election, predicted the pound will be at $1.28 in one month, $1.27 in six and then at $1.28 in a year.