Brexit may have already triggered recession due to ‘chronic’ uncertainty, economists warn

BRITAIN has been hit so hard by Brexit that there is a “significant risk” that it is already tipping into recession, leading economists warned today.

The National Institute of Economic and Social Research (NIESR) believes there is around a one-in-four chance that the economy will have shrunk from April to June, and will also do so in the following three months. It also puts the likelihood of a no-deal exit from the EU at some 40 per cent.

Even if a no-deal departure could be done in an “orderly” way, it would still snuff out any economic growth in 2020 and send inflation to over four per cent, denting living standards for millions.

The NIESR says the economy appears to have lost any “significant momentum” given the “chronic” uncertainty facing businesses due to Brexit, and slowing global growth. “There is a significant risk that the economy is already in a technical recession,” it added.

The economists predicted that GDP will have contracted by 0.1 per cent in the three months to June. They suggest the country will “narrowly” avoid recession — defined as two consecutive quarters of negative growth — by forecasting economic growth of 0.2 per cent in the three months to September.

“With little positive momentum in the economy, output may contract again in the third quarter. There is around a onein-four chance of two consecutive quarters of negative growth,” it warned.

The outlook beyond October 31, when the UK is due to leave the EU, is “very murky”, with the possibility of a “severe downturn” if there is a disorderly nodeal exit, with the pound crashing to be worth around $1.10. The NIESR believes an orderly no-deal Brexit is more likely, and that there is still around a 60 per cent chance of an agreement similar to Theresa May’s, another delay to Brexit, or “standstill arrangements”.

If a no deal is avoided, the economy is predicted to grow in both 2019 and 2020 by one per cent. But if we crash out from the EU, GDP growth is forecast to be zero next year, with interest rates rising from 0.75 per cent to 1.75 per cent.

The economists say there is around a 30 per cent chance of a fall in output growth in 2020. A rise in public spending also seems “inevitable,” with public borrowing expected to go up, too.

Firms and households, though, may have become “complacent” about preparing for no deal, warned the NIESR. It also stressed that warehouse space already limits further stock-building.