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26 May 2024

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

Photo: AFP


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 World Trade Organisation (WTO) tariffs as would happen if there is no new trading arrangements are in place with the EU.

Boris Johnson, the front-runner to next week become Britain's prime minister, has repeatedly vowed that the country will leave without an agreement if no deal is reached by the end of October.

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" as a result.

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 Thursday deals.

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 expected to defeat Foreign Secretary Jeremy Hunt in the race to replace outgoing prime minister Theresa May, who is stepping down after failing to get her deal through parliament, an effort that forced her to delay Brexit twice.