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Britain probably starting mild recession, #BoE to cut rates in November: Reuters poll

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Britain's decision to quit the European Union has already begun tipping its economy into a mild recession, according to economists in a Reuters poll, most of whom said the Bank of England would chop interest rates again in November, writes .

Ahead of the June 23 Brexit vote, economists had predicted growth would continue close to the 0.6% achieved in the second quarter, but median forecasts in the latest Reuters poll showed the economy would contract 0.1% this quarter and next.

If correct, that would meet the technical definition of recession. Britain's economy would then return to only modest growth next year, the poll of nearly 60 economists taken this week found.

"The recession will largely be driven by sharp falls in business investment over the coming quarters," said Samuel Tombs at Pantheon Macroeconomics.

"Most firms will hold off investment until there is a bit more clarity over whether we are likely to remain in the single market ... and to see how much other firms are impacted by Brexit."

Britain's economy started to shrink in July, according to a forecast from the National Institute of Economic and Social Research on Tuesday, while last week's Markit/CIPS PMI surveys suggested it is contracting at the fastest rate since the 2008-09 financial crisis. [GB/PMIS]

In its own survey, the BoE was not as starkly downbeat as the larger PMIs but said growth slowed across business services and consumer spending eased last month.

After surprising markets by doing nothing in July, the Bank earlier this month cut Bank Rate by 25 basis points to a record low of 0.25%. It also restarted its asset buying program with a £60 billion top-up and announced two new stimulus schemes.

That unexpectedly aggressive stimulus package sent British gilt yields on one of their biggest forays into negative territory in their 300-year history on Wednesday (10 August).

With little room for more easing, the scope for further downside is limited. The poll concluded that for the time being at least, the Bank would not top up its now 435 billion pound quantitative easing program.

Following the meeting, however, the Bank said most policymakers expected to trim the main interest rate even closer to zero later this year.

To give the economy one more shot in the arm, Bank Rate will be cut to just 0.1 percent at the November meeting, according to the poll median.

"With our forecast looking for an even weaker outturn than the BoE in H2, I suspect a rate cut is highly likely and I suspect that the effective lower bound is around 0.1 percent," said Peter Dixon at Commerzbank.

BoE Governor Mark Carney has dismissed negative interest rates, used by other central banks, as a policy option and 19 of 23 economists who answered an extra question said he was right to do so.

"You might argue that ruling out any policy option is unwise, and under normal circumstances it is, but my interpretation of Carney's message is that there are limits to what monetary policy can achieve and that the ball is in the government's court to take appropriate measures," Dixon said.

Finance minister Philip Hammond has said he will review government tax and spending policy in a budget update later this year. Some economists have urged him to launch a program of debt-finance investment projects to support the economy.

Over two-thirds of the economists who answered an extra question said they expect significant fiscal stimulus from the government when it presents its Autumn Statement.

"Despite the fanfare, a 25 basis point rate cut and more QE can't be expected to have a huge macroeconomic impact," said Simon Wells at HSBC. "If the economy deteriorates further, fiscal policy may be a more effective quick fix."

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EU's Barnier still hopes trade deal with Britain possible, sources say

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The European Union’s Brexit negotiator told the bloc’s 27 national envoys to Brussels that he still hoped a trade deal with Britain was possible, stressing that the coming days would be decisive, diplomatic sources with the bloc told Reuters, write and

Michel Barnier addressed the gathering on Wednesday (16 September) and the three sources either participated in the discussion behind closed doors or were briefed on its content.

“Barnier still believes a deal is possible though the next days are key,” said one of the EU diplomatic sources.

A second diplomat, asked what Barnier said on Wednesday and whether there was still a chance for a new agreement with the UK, said: “The hope is still there.”

The first source said tentative concessions offered by the UK on fisheries - a key point of discord that has so far prevented agreement on a new EU-UK trade deal to kick in from 2021 - were “a glimmer of hope”.

Reuters reported exclusively on Tuesday (15 September) that Britain has moved to break the deadlock despite that fact that publicly London has been threatening to breach the terms of its earlier divorce deal with the bloc.

A third source, a senior EU diplomat, confirmed the UK offer but stressed it was not going far enough for the bloc to accept.

Brexit talks descended into fresh turmoil this month over Prime Minister Boris Johnson’s plans to pass new domestic laws that would undercut London’s earlier EU divorce deal, which is also aimed at protecting peace on the island of Ireland.

US Democratic presidential candidate Joe Biden warned Britain that it must honour the Northern Irish peace deal as it extracts itself from the EU or there would be no US trade deal for the United Kingdom.

The third EU source, who spoke under condition of anonymity, said that the bloc would take a more rigid line in demanding a solid dispute settlement mechanism in any new UK trade deal should Johnson press ahead with the Internal Market Bill.

“There is unease about what Britain is doing but Barnier has stressed he will keep negotiating until his last breath,” said a fourth EU diplomat, highlighting the bloc’s wariness about being assigned blame should the troubled process eventually fail.

Asked about an estimate by Societe Generale bank, which put at 80% the probability of the most damaging economic split at the end of the year without a new deal to carry forward trade and business ties between the EU and the UK, the person said:

“I would put it around the same mark.”

Barnier is due to meet his UK counterpart, David Frost, around 1400 GMT in Brussels on Thursday.

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Biden warns UK on #Brexit - No trade deal unless you respect Northern Irish peace deal

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US Democratic presidential candidate Joe Biden warned the United Kingdom that it must honour the Northern Irish peace deal as it extracts itself from the European Union or there would be no US trade deal, write and

“We can’t allow the Good Friday Agreement that brought peace to Northern Ireland to become a casualty of Brexit,” Biden said in a tweet.

“Any trade deal between the US and UK must be contingent upon respect for the Agreement and preventing the return of a hard border. Period.”

Johnson unveiled legislation that would break parts of the Brexit divorce treaty relating to Northern Ireland, blaming the EU for putting a revolver on the table in trade talks and trying to divide up the United Kingdom.

He says the United Kingdom has to have the ability to break parts of the 2020 Brexit treaty he signed to uphold London’s commitments under the 1998 peace deal which ended three decades of sectarian violence in Northern Ireland between pro-British Protestant unionists and Irish Catholic nationalists.

The EU says any breach of the Brexit treaty could sink trade talks, propel the United Kingdom towards a messy exit when it finally leaves informal membership at the end of the year and thus complicate the border between Northern Ireland and EU-member Ireland.

The EU’s Brexit negotiator told the bloc’s 27 national envoys that he still hoped a trade deal with Britain was possible, stressing that the coming days would be decisive, three diplomatic sources told Reuters.

Michel Barnier addressed the gathering on Wednesday and the three sources either participated in the discussion behind closed doors or were briefed on its content.

“Barnier still believes a deal is possible though the next days are key,” said one of the EU diplomatic sources.

Johnson told The Sun that the EU was being “abusive” to Britain and risking four decades of partnership.

He said the UK must “ring-fence” the Brexit deal “to put in watertight bulkheads that will stop friends and partners making abusive or extreme interpretations of the provisions.”

Societe Generale analysts said on Thursday they now see an 80% chance that Britain and the EU will fail to strike a trade deal before the end of the year.

Biden, who has talked about the importance of his Irish heritage, retweeted a letter from Eliot Engel, chair of the Foreign Affairs Committee of the US House of Representatives, to Johnson calling on the British leader to honour the 1998 Good Friday peace deal.

Engel urged Johnson to “abandon any and all legally questionable and unfair efforts to flout the Northern Ireland protocol of the Withdrawal Agreement.”

He called on Johnson to “ensure that Brexit negotiations do not undermine the decades of progress to bring peace to Northern Ireland and future options for the bilateral relationship between our two countries.”

Engel said Congress would not support a free trade agreement between the United States and the United Kingdom if Britain failed to uphold its commitments with Northern Ireland.

The letter was signed by Representatives Richard Neal, William Keating and Peter King.

Johnson is pushing ahead with his plan.

His government reached a deal on Wednesday (16 September) to avert a rebellion in his own party, giving parliament a say over the use of post-Brexit powers within its proposed Internal Market Bill that breaks international law.

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UK sees 'a way through' parliamentary maze for #Brexit treaty breach bill

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British Prime Minister Boris Johnson’s government sees a ‘way through’ the parliamentary maze for his bill that would break the Brexit divorce treaty as it talks with rebels in the Conservative Party, a minister said on Wednesday (16 September). write Guy Faulconbridge and Kate Holton.

Johnson’s Internal Market Bill, which the EU has demanded he scrap by the end of September, is currently being debated in parliament, though he is facing a rebellion by some members of his Conservative Party.

“I believe there is a way through,” Robert Buckland told the BBC when asked about negotiations with rebels in parliament over the bill, adding that London wanted a deal with the EU.

“In terms of shared understanding, I have already seen quite a difference,” he said when asked about a possible compromise in parliament.

Asked if he had been involved in negotiations with Bob Neill, a Conservative lawmaker, Justice Secretary Robert Buckland said: “There are lots of discussions going on with all MPs from all parts of the debate, not just Bob Neill.”

“We want to get this bill through, we want to make sure that we are ready for any disagreements or disputes that might arise if we don’t get agreement in the joint committee,” he said. “For me, I just want Brexit sorted.”

Buckland told Times Radio that the bill was needed as an insurance policy in case the EU made a “material breach” of their obligations but that the talks were not yet at that stage and that London would use current mechanisms to find a compromise.

The EU says Johnson’s bill could collapse trade talks and propel the United Kingdom towards a messy Brexit while former British leaders have warned that breaking the law is a step too far that undermines the country’s image.

Johnson said it was essential to counter “absurd” threats from Brussels including that London put up trade barriers between Britain and Northern Ireland and impose a food blockade - steps he said threatened the United Kingdom’s unity.

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