No-deal Brexit would plunge Britain into a recession, says OBR

Office for Budget Responsibility believes economy would shrink by 2% by end of 2020

A no-deal Brexit would plunge Britain into a recession that would shrink the economy by 2%, push unemployment above 5% and send house prices tumbling by around 10%, according to the government’s independent forecasting body.

In an assessment of the impact of Britain leaving the EU without a deal at the end of October, the Office for Budget Responsibility said the result would be a year-long downturn that would increase borrowing by £30bn a year.

The assessment prompted a fresh warning from the chancellor, Philip Hammond, to Brexiters calling 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.”

The OBR estimated that the recession – caused by the impact of increased uncertainty and falling confidence on investment and trade – would be as bad as that suffered in the 1990s but only a third as bad as the slump at the time of the financial crisis of the late 2000s.

In its fiscal risks report, the OBR said its assessment was “relatively benign” because it was based on the less gloomy of two scenarios produced by the International Monetary Fund earlier this year. A worst-case scenario sketched out by the Bank of England last November estimated that the economy could shrink by as much as 8% in an even deeper recession than that of 2008-09.

However, the OBR – established in 2010 to provide independent forecasts for growth and the public finances – said the outcome would be worse if a no-deal, no-transition Brexit also resulted in chaos at the border.