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No-deal Brexit will tip UK into recession, government’s official spending watchdog says


Britain could fall into recession next year if it crashed out of the EU without a deal, the government’s official spending watchdog has said.

The Office for Budget Responsibility has carried out a “stress test” to quantify the impact on public finances of a particular type of a no-deal Brexit – the less disruptive of the two presented by the IMF in its World Economic Outlook, published in April.

Even in that scenario “heightened uncertainty and declining confidence deter investment, while higher trade barriers with the EU weigh on exports”, the OBR said in its fiscal risks report. “Together, these push the economy into recession, with asset prices and the pound falling sharply.”

The stress test is “by no means” a worst-case scenario under a no-deal Brexit, it added. 

Speaking at a meeting of G7 finance ministers in Chantilly, France, Chancellor Philip Hammond said: “The report that the OBR have published this morning shows that even in the most benign version of a no-deal exit there would be a very significant hit to the UK economy, a very significant reduction in tax revenues and a big increase in our national debt – a recession caused by a no-deal Brexit.

“But that most benign version is not the version that is being talked about by prominent Brexiteers. They are talking about a much harder version which would cause much more disruption to our economy. The OBR is clear that in that less benign version of no-deal, the hit would be much greater, the impact would be much harder, the recession would be bigger. So I greatly fear the impact on our economy and our public finances of the kind of no-deal Brexit that is realistically being discussed now.”

Detailing the less drastic scenario it examined, the OBR said the possible recession would start in the fourth quarter of 2019 and last a year. GDP adjusted for inflation would decline by 2.1 per cent, around the same as in the early-1990s recession and about a third of the fall during the financial crisis. By the middle of 2021, real GDP would be 4 per cent lower compared with the OBR’s latest economic forecasts in March and, despite a recovery, it would still be 1.6 per cent smaller by early 2024.

Government debt would rise relative to GDP over the next three years and the budget deficit would widen by around £30bn from 2020-21 onwards, the report said.

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