No-deal Brexit forecast to spark year-long UK recession

LONDON: Britain will slide into a year-long recession should it leave the European Union without a deal with Brussels, the government’s official forecaster said Thursday.

“The UK enters a year-long recession in the fourth quarter of 2019” should Britain depart the bloc on October 31 with a “no-deal, no-transition Brexit”, the Office for Budget Responsibility (OBR) predicted in a key report.

State borrowing was meanwhile forecast to balloon by about £30 billion ($37 billion, 33 billion euros) per year from 2020 on sliding tax receipts, should Britain default to the World Trade Organization (WTO) tariff system.

The OBR also warned that financial markets, and the British pound, could “fall sharply in a disorderly Brexit, reflecting the likely deterioration in financial market participants’ views about the future economic outlook”.

The OBR’s stress test report forecast a five-percent drop in the London stock market and a 10-percent slump in sterling — but market moves “could be more significant”, it highlighted.

Boris Johnson, the front-runner to become Britain’s next prime minister and rival candidate Jeremy Hunt, have both said that Britain leaving without a deal was a realistic prospect, even if they both prefer an agreement.

Johnson especially has insisted he will take Britain out of the EU on October 31 come what may.

‘Heightened uncertainty’

The OBR’s fiscal risks report highlighted the impact on the public finances of a no-deal, no-transition departure.

“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,” the OBR said.

The Bank of England has repeatedly warned that a no-deal Brexit would spark a deep recession, while the International Monetary Fund says the UK economy would suffer “substantial costs”.

The British pound, which this week hit its lowest point for more than two years against the dollar and six months against the euro owing to Brexit deadlock, held firm in late morning deals on Thursday.

Johnson on Wednesday suggested that the EU would bear some responsibility if he took his country out of the bloc without a divorce deal.

The former London mayor is next week expected to defeat Foreign Secretary Hunt in the race to replace Prime Minister Theresa May, who is stepping down after failing to get her deal through parliament and being forced to delay Brexit twice.

Despite looming Brexit, the UK economy has shown signs of stability, with official data this week confirming low unemployment and inflation.

British retail sales meanwhile rebounded by 1.0 percent in June from the previous month, according to data Thursday, while the boss of no-frills British airline EasyJet downplayed the impact of Brexit.

“We will fly without disruption,” chief executive Johan Lundgren told reporters after the carrier published a downbeat third-quarter trading report.