A no-deal Brexit will plunge Britain into recession and shrink the
economy by two per cent, the UK’s official economic forecaster has said.
There have been warnings since the 2016 referendum that crashing
out of the bloc would be a disaster for the economy. But now the Office for
Budget Responsibility (OBR) has given its official assessment – and the
forecast appears dire. The organisation warned on Thursday morning that no-deal
will have a devastating effect on wages, employment and house prices.
In a five-year forecast, they predict the economy will decline in
2020 and enter recession – technically two quarters of shrinking GDP. The UK’s
GDP is likely to be at least 2 per cent lower under a no-deal Brexit than if
the UK leaves the EU with an agreement. We will also have to borrow an
additional £30 billion a year to cope, pushing our debt levels even higher. In
the executive summary, the OBR said: ‘Heightened uncertainty and declining
confidence deter investment, while higher trade barriers with the EU weigh on
exports. ‘Together, these push the economy into recession, with asset prices
and the pound falling sharply. ‘Real GDP falls by two per cent by the end of
2020 and is four per cent below our March forecast by that point. ‘Higher trade
barriers also slow growth in potential productivity, while lower net inward
migration reduces labour force growth, so potential output is lower than the
baseline throughout the scenario (and beyond). ‘The imposition of tariffs and
the sterling depreciation raise inflation and squeeze real household incomes,
but the Monetary Policy Committee is able to cut Bank Rate to support demand,
helping to bring output back towards potential and inflation back towards
target.’
Both Conservative leadership candidates Boris Johnson and Jeremy
Hunt have said they are prepared to leave the EU without a deal. Parliament
could even be suspended to force through a no-deal after MPs voted earlier this
year that they wanted to leave with some form of divorce deal with the bloc. If
we crash out, it means the UK automatically reverts to World Trade Organisation
rules on trade – which mean much higher tariffs for companies. The OBR’s
prediction is based on models from the International Monetary Fund (IMF), which
has assumed no border disruption but an increase of tariffs by four per cent.
Last November, the Bank warned the economy could shrink by eight per cent by
2035 and that interest rates would have to rise by 5.5 per cent to offset the
impact. The last time the UK economy entered into a recession was 2008 and 2009
at the height of the global financial crisis. Uncertainty over Brexit has
already seen the pound become the worst performing major currency over the past
year. It has now dropped to its lowest level against the dollar since 2017.
The EU chief negotiator Michel Barnier has said that during
negotiations with outgoing prime minister Theresa May, she never threatened to
take the UK out of the EU without a deal. In an interview with the BBC, he said
the only way to leave was in ‘an orderly manner’ and that the UK would have to
‘face the consequences if it crashed out.’ He added that the UK knew the EU
would not respond to threats of a no-deal. David Lidington, the de facto deputy
prime minister, also told the Panorama programme that the EU offered to put
Brexit on hold in 2018 for five years and proposed a ‘new deal for Europe’.
Source: Metro co uk
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