‘No-deal Brexit equals recession’
london — Leaving the European Union without a divorce deal could plunge Britain into its deepest recession in nearly a century, with the economy shrinking 8 per cent within months as unemployment and inflation soar, the Bank of England warned.
The stark projection came the same day the government’s own economists said the country will be poorer after Brexit than if it had stayed in the EU, no matter what sort of trade deal it secures with the bloc.
Britain and the EU have agreed on a deal for the UK’s smooth exit in March. But British lawmakers are threatening to derail it, and Prime Minister Theresa May is battling to persuade them to support her agreement when Parliament votes next month.
May says that if Parliament rejects her deal, Britain could be headed for an economically disruptive “no deal” Brexit on March 29.
The central bank said that in a worst case scenario that could mean Britain’s economy slumps far more than it had after the 2008 global financial crisis.
It predicted that in a no-deal scenario — with tariffs and other trade barriers, and no transition period to help businesses adapt — inflation would rise to almost 7 per cent, unemployment would soar to 7.5 per cent from 4.1 per cent now, the pound would fall to near parity with the dollar and house prices
8%
Economic contraction in the UK in the event of a no-deal Brexit
would fall 30 per cent. “Our job is not to hope for the best but to prepare for the worst,” said Bank of England Governor Mark Carney.
Despite the gloom the British economy faces in the event of a “disorderly and disruptive Brexit,” he said the UK financial system was robust enough to weather the shock.
The central bank said that in the worst-case scenario, the economy would end up being between 4.75 per cent and 7.75 per cent smaller by the end of 2023 than in its most recent forecasts this month. And compared with the path projected before the June 2016 Brexit referendum, the bank said the economy could be 10.5 per cent smaller.
However, the central bank said a strong trade deal with as few frictions as possible would mitigate the negative impact, especially if it is accompanied by a transition period to let businesses adapt.
May’s agreement with the EU has factored in a transition period through the end of 2020 that can be extended.
If Britain retains a “close economic partnership” with the EU, the bank said the economy will end up between 1.25 and 3.75 per cent smaller by the end of 2023 compared with the trend
growth rate registered before the Brexit vote.
Carney said British business is “not fully prepared for a cliff-edge Brexit,” pointing to the lack of contingency plans and sparse knowledge in business about how to do customs declarations. The country, he said, will need time to adjust.
A separate government assessment estimated that a no-deal Brexit would leave the British economy up to 9.3 per cent smaller after 15 years than if the country had remained in the EU. —