The British government’s independent forecasting body – the Office for Budget Responsibility (OBR) has warned that there would be a recession in the country, with 2 per cent shrinkage in the economy, if there is a no-deal Brexit. It has also warned that such an eventuality would push unemployment above 5 per cent while there would be a 10 per cent drop in house prices.

The year-long downturn in the UK economy because of a no-deal Brexit would increase government borrowing by £30bn a year, said the OBR in an assessment of the impact of Britain leaving the EU without a deal at the end of October.

The chancellor, Philip Hammond, issued a fresh warning to Brexiters following the assessment and called for a “harder” exit from the EU.

“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,” Hammond said in a Reuters interview.

“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 and 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.”

According to the estimates of the OBR, the recession would be as bad as that the one that hit the country in the 1990s but only about one third as bad as the 2008 global financial crisis. The cause of the crisis would be a significant and sudden drop confidence on investment and trade and the increased uncertainty to trade because of a no-deal Brexit.

The assessment of the OBR was “relatively benign” since it was made on the basis of the less painful scenarios of the two that was presented by the International Monetary Fund earlier this year, the agency said in its fiscal risks report. In November, the Bank of England presented a worst-case scenario that forecast that a no-deal Brexit could cause the economy to shrink as much as 8 per cent and that the recession would be worse than that of 2008-09.

“A more disruptive or disorderly scenario could hit the public finances much harder,” the OBR added.

“The big picture is that heightened uncertainty and declining confidence deter investment, higher trade barriers with the EU weigh on domestic and foreign demand, while the pound and other asset prices fall sharply. These factors combine to push the economy into recession,” said OBR chairman, Robert Chote while speaking at a press conference to launch the report,

(Adapted from TheGuardian.com)

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