No-deal Brexit to force Britain into recession by end of next year

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