No Deal Brexit Would Sink Britain Financially - Office of Budget Responsibility
14:15 18.07.2019(updated 14:24 18.07.2019)
There have been recurrent warnings since the June 2016 referendum that leaving the bloc without a deal would be a disaster for the UK, and the OBR's official assessment confirms those dismal projections and then some, with the organisation warning no-deal will have a brutally deleterious effect on wages, employment and house prices.
A no-deal Brexit will plunge Britain into recession and shrink the economy by two percent, the UK's official economic forecaster, the Office for Budget Responsibility has said.
In a five-year forecast, the organisation predicts the economy will decline in 2020 and enter recession, as "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 percent by the end of 2020 and is four percent 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…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," the OBR forecast.
Speaking at the launch of the report, OBR chair Robert Chote said uncertainty and declining confidence will deter investment, higher trade barriers with the EU will weigh on domestic and foreign demand, and the pound and other asset prices will fall sharply.
"These factors combine to push the economy into recession," he said, noting "a more disruptive or disorderly scenario" could damage public finances "much harder". Leaving without a deal would add £30 billion a year to borrowing from 2020-21 and 12 percent of GDP to net debt by 2023-24.
The prediction is based on International Monetary Fund models, which assume no border disruption but an increase of tariffs by four percent, as leaving without a deal would mean the UK automatically reverts to World Trade Organisation rules on trade. Conservative leadership finalists Boris Johnson and Jeremy Hunt have both pledged to leave the EU without a deal if the agreement secured by Theresa May cannot be renegotiated with Brussels. Uncertainty over Brexit has already seen the pound become the worst performing major currency over the past year, and it's now dropped to its lowest level against the dollar since 2017.
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