Regarding relationship and romance, Separation vs. Divorce are just semantics. If your wife wants to date someone else, she will regardless. If your wife wants back in the marriage, she will tell you regardless. Living separately, being legally separated or divorced will make no real difference in her behavior or choices. As they say here, "She's out to lunch."
Legally and financially speaking (and for your children's well-being too) there is a HUGE difference, from what you are telling me about UK law. You need to protect yourself NOW. You need to secure your home, your children's stability, etc. If a divorce is going to better accomplish that, DO IT NOW. Two years from now when your wife has a boyfriend and he's telling her to take YOU to the cleaners, your well-being will be compromised.
Getting a divorce means you are moving on. If you keep telling her you will come back crawling to her if she changes her mind, she'll always know you are the fallback option -- you are PLAN B. And if she knows that, she'll never really have to face the consequences of her actions. She'll also be able to play you in 2 year's time when she wants a more generous settlement.
I honestly think the best way to give your wife the space to process her actions and really think about losing you is to divorce her and set yourself up well. In addition, stop asking her if she really wants this, and stop telling her that you are a viable plan B in case her new single (and soon to be dating) life doesn't work out.
