According to analysis by the global rating agency Standard & Poor’s, there could be a prolonged recession in the British economy because of a possible rise in unemployment and a fall in the household income if the Theresa May government is unable to ensure that a deal is reached with the European Union before the onset of Brexit in march next year.
This scenario, which has increased ion likelihood in recent months because of the diminishing chances of a well crafted Brexit deal between the two parties, could also see a significant slump in property prices and a sharp spike in inflation rate of up to 5 per cnet, said S&P.
While claiming that it still was hopeful of a an agreement being reached between the sides for a proper Brexit deal before March next year when the UK would formally exit the EU, S&P warned that there were chances of a possible downgrading of the UK’s credit rating which will significantly increase the borrowing costs for the Treasury.
The S&P report noted that the extent of the chances of a “no-deal” Brexit has risen so much that the agency now felt the need to warn its international investors about the possible challenges with the British economy in the months after setting in of Brexit.
The British prime minister gas rejected a demand by EU negotiator Michel Barnier, asking for a backstop which would allow open trade to happen through the Irish border open to trade, even at the cost of separating the province from the mainland and the creation of a border on the Irish sea.
The deadlock in the negotiations has fuelled doubts about whether any deal can be reached between the parties at all in the short time that remains before the official imposition of Brexit.
“Our base-case scenario is that the UK and the EU will agree and ratify a Brexit deal, leading to a transition phase lasting through 2020, followed by a free trade agreement,” said S&P Global Ratings credit analyst Paul Watters.
“But we believe the risk of no deal has increased sufficiently to become a relevant rating consideration. This reflects the inability thus far of the UK and EU to reach agreement on the Northern Irish border issue, the critical outstanding component of the proposed withdrawal treaty”, Watterss added.
The S&P also noted that there would be a sharp fall in the value of the pound if there is a no-deal Brexit, which would in turn result in higher rates of inflation and a lowering of real wages. Such an economic situation could last as long as three years.
There was a material risk to the UK, the EU and the global economy if there is no deal before the setting in of Brexit, the International Monetary Fund and the OECD have also said.
(Adapted from TheGuardian.com)