Bank of England sounds warning over no-deal Brexit
Britain would be plunged into its deepest recession since the 1930s under a disorderly no-deal Brexit, the Bank of England warned yesterday.
House prices could fall by 30 per cent, interest rates could rise to 5.5 per cent and the economy could shrink by 8 per cent – a worse drop than after the 2008 financial crisis – its worst-case scenario showed.
Ben Broadbent, one of the Bank’s deputy governors, said this would be worse than any crisis since ‘‘we went back on gold’’ and the economy crashed in 1930. In the 2008 financial crisis the British economy shrank by 6.3 per cent.
The Bank’s assessment came hours after a Whitehall analysis suggested that Britain’s economy would shrink under all versions of Brexit.
Philip Hammond, the chancellor of the exchequer, said that, in a ‘‘purely economic sense’’, Britain would be worse off than if it stayed in the European Union. In the Commons, however, Prime Minister Theresa May said the cross-government analysis did not mean that the country would be ‘‘poorer in the future than we are today’’.
The Bank and Whitehall analyses – which were branded ‘‘fraudulent’’ and ‘‘unrealistic’’ by Brexiteers – set out various Brexit scenarios, including if parliament could not agree a way forward on Brexit and Britain left the EU in March without a divorce deal or transition period.
The Whitehall analysis showed that the economy would be up to 3.1 per cent smaller over a 15-year period even if May was successful in getting her deal passed and secured a ‘‘frictionless’’ relationship with the
EU. The document acknowledged that May could struggle to acheive the latter, given that the EU has rejected her Chequers trade plan.
Under a no-deal scenario, the British economy would be up to 10.7 per cent smaller and under a Canada-style trade deal it could be up to 8.1 per cent smaller, it said. Brexiteers reacted with fury to the assessments, accusing May and Mark Carney, pictured, the Bank of England’s governor, of resurrecting ‘‘Project Fear’’ – the dire warnings made during the 2016 referendum campaign.
The leading Brexiteer MP Steve Baker declared that ‘‘the reputation of government economics is in the gutter’’ after the publication of the Whitehall report. The former government trade official David Henig condemned the Treasury-led analysis as ‘‘fraudulent’’ because it was based on ‘‘unrealistic’’ scenarios designed to flatter May’s plan.
Andrew Sentance, a former member of the Bank of England’s monetary policy committee, led the criticism of Carney. ‘‘The reputation of economic forecasts has taken a bad blow today with both the UK government and the Bank appearing to use forecasts to support political objectives. Let’s debate Brexit – which I strongly oppose – rationally without recourse to bogus forecasts,’’ he said.