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Britain is scheduled to leave the EU by the end of March 2019 when two years of negotiations over the divorce settlement and future relationship come to a close. So far, those negotiations have been far from fruitful. A Reuters poll last month said the most likely eventual outcome would be an EU-UK free trade agreement, but it also found the chance of a disorderly Brexit - where no deal was agreed - had crept higher to 30 percent. "We see Brexit as the main driver of the economic outlook, and given the uncertainty about how the talks will play out, a wide range of potential outcomes for the economy," Morgan Stanley economists wrote to clients.
Similarly, foreign exchange strategists in a recent Reuters poll said progress in the divorce talks would give the biggest boost to sterling in the coming year. British inflation soared after sterling plummeted in the aftermath of the Brexit vote - it registered 3.0 percent in October.
But it is likely to drift lower in coming years. The poll predicted average consumer prices rising an average 2.7 percent this year, 2.5 percent next and 2.2 percent in 2019 - all above the central bank´s 2 percent target. A plurality of economists said forecast risks were skewed to the upside. Inflation unexpectedly held steady last month, wrong-footing the Bank of England and raising fresh questions about the wisdom of its first rate rise in a decade earlier this month and just how fast the central bank will follow up with another. The latest Reuters poll predicts the next increase, of another 25 basis points, not to come until towards the end of next year. But that call was on a knife´s edge, with 28 of 55 respondents going for a hike by year-end and 27 saying no change. "We still think the Committee - or a majority of its members - are minded to raise rates again.
Whether the economy retains enough momentum into 2018 to allow them to do so is another question," wrote Elizabeth Martins at HSBC.
Bank Governor Mark Carney has warned Brexit will make the economy even more inflation-prone and aggravate Britain´s weak productivity growth.
The Office for Budget Responsibility, established by the UK government to provide independent economic predictions, will publish its latest forecasts for productivity on Wednesday, the day Finance Minister Philip Hammond presents his budget.