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Britain at risk of 'full-blown' recession as no-deal Brexit looms - as it happened | |
(about 1 hour later) | |
Finally, here’s our updated news story on the Office for Budget Responsibility’s fiscal risks report, and its concerns about Brexit. | |
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. | |
Full story here | |
No-deal Brexit would plunge Britain into a recession, says OBR | |
Over in New York, shares in Netflix have plunged by 10% in early trading. | |
Netflix disappointed Wall Street last night by reporting a drop in US-based subscribers, for the first time in eight years. It also missed its target for international subscriber growth, putting some blame on recent price increases. | |
Netflix has been spending $15bn per year on new content, driving up its debt pile, so a slowdown in growth is obviously worrying. | |
Netflix shares open around 10% lower after the firm announced a sharp drop in subscriber growth in Q2 (+2.7M vs +5.3M exp) pic.twitter.com/buF8xnCtjK | |
Long term chart of Netflix which is down 10% today trading at $328 ... pic.twitter.com/8Bgf2E3Evu | |
There’s not much market reaction to that vote, even though it underlines that MPs won’t accept a no-deal Brexit. | There’s not much market reaction to that vote, even though it underlines that MPs won’t accept a no-deal Brexit. |
The pound is still up almost half a cent today at $1.247, and up half a eurocent at €1.112. | The pound is still up almost half a cent today at $1.247, and up half a eurocent at €1.112. |
Newsflash: MPs have backed an amendment that would try to stop Boris Johnson shutting down parliament in the autumn to facilitate a no-deal Brexit by 315 votes to 274. | Newsflash: MPs have backed an amendment that would try to stop Boris Johnson shutting down parliament in the autumn to facilitate a no-deal Brexit by 315 votes to 274. |
That’s a majority of 41, rather larger than expected. | That’s a majority of 41, rather larger than expected. |
Several cabinet ministers are thought to have abstained, including chancellor Philip Hammond (who was spotted on Downing Street while the voting took place). | Several cabinet ministers are thought to have abstained, including chancellor Philip Hammond (who was spotted on Downing Street while the voting took place). |
More names abstaining: Stephen Hammond, Tobias Ellwood, Huw Merriman and Anne Milton also believed to be abstaining say Tory rebels | More names abstaining: Stephen Hammond, Tobias Ellwood, Huw Merriman and Anne Milton also believed to be abstaining say Tory rebels |
Wow big victory - govt defeated 274 to 315- govt loses by 41 votes - Margot James has resigned as DCMS minister - Cabinet abstentions including Clark Hammond Stewart Gauke. Will May ask them to resign | Wow big victory - govt defeated 274 to 315- govt loses by 41 votes - Margot James has resigned as DCMS minister - Cabinet abstentions including Clark Hammond Stewart Gauke. Will May ask them to resign |
Andy Sparrow’s Politics Live blog has all the action: | Andy Sparrow’s Politics Live blog has all the action: |
Brexit: MPs vote to stop Boris Johnson proroguing parliament for no-deal by majority of 41 - live news | Brexit: MPs vote to stop Boris Johnson proroguing parliament for no-deal by majority of 41 - live news |
Consumers appear to be shaking off Brexit uncertainty, by driving retail sales up last month. | Consumers appear to be shaking off Brexit uncertainty, by driving retail sales up last month. |
Retail spending jumped by 1% in June, partly due to Brits having a good old rummage through the local antique shop or charity chain. | Retail spending jumped by 1% in June, partly due to Brits having a good old rummage through the local antique shop or charity chain. |
My colleague Julia Kollewe explains: | My colleague Julia Kollewe explains: |
Retail sales in the UK were unexpectedly strong in June, boosted by sales of secondhand goods at charity shops and antique dealers, although department stores continued to struggle. | Retail sales in the UK were unexpectedly strong in June, boosted by sales of secondhand goods at charity shops and antique dealers, although department stores continued to struggle. |
The quantity of goods bought in June rose 1% from May, according to the Office for National Statistics. City economists had forecast a 0.3% drop in sales, following May’s 0.6% fall. The figures boosted the pound by half a cent to $1.2480. | The quantity of goods bought in June rose 1% from May, according to the Office for National Statistics. City economists had forecast a 0.3% drop in sales, following May’s 0.6% fall. The figures boosted the pound by half a cent to $1.2480. |
However, there was a sharp slowdown in retail sales growth in the three months to June. Sales rose 0.7%, down from 1.6% in the previous three months – marking the weakest growth rate since the three months to February. | However, there was a sharp slowdown in retail sales growth in the three months to June. Sales rose 0.7%, down from 1.6% in the previous three months – marking the weakest growth rate since the three months to February. |
More here: | More here: |
Charity shop and antique purchases drive up UK retail sales | Charity shop and antique purchases drive up UK retail sales |
The Office for Budget Responsibility’s Brexit analysis certainly paint a worrying picture of life in Britain after a no-deal exit from the EU. | The Office for Budget Responsibility’s Brexit analysis certainly paint a worrying picture of life in Britain after a no-deal exit from the EU. |
Even though it uses the least severe of the IMF’s two no-deal Brexit forecasts, the OBR assumes: | Even though it uses the least severe of the IMF’s two no-deal Brexit forecasts, the OBR assumes: |
Net migration into the UK is lower by 25,000 a year out to 2030. | Net migration into the UK is lower by 25,000 a year out to 2030. |
The UK enters a year-long recession in the fourth quarter of 2019. | The UK enters a year-long recession in the fourth quarter of 2019. |
The pound immediately plunges by 10%, towards $1.1 against the US dollar | The pound immediately plunges by 10%, towards $1.1 against the US dollar |
Unemployment rises, peaking at just over 5 per cent in 2021 (compared with 3.8% today) | Unemployment rises, peaking at just over 5 per cent in 2021 (compared with 3.8% today) |
Inflation rises, and wage growth slows, meaning real wages are “significantly lower” – by 2.5 per cent by the start of 2024. | Inflation rises, and wage growth slows, meaning real wages are “significantly lower” – by 2.5 per cent by the start of 2024. |
House prices fall by almost 10% between the start of 2019 and mid-2021. | House prices fall by almost 10% between the start of 2019 and mid-2021. |
The Bank of England cuts interest rates to around 0.2% by the end of 2020. | The Bank of England cuts interest rates to around 0.2% by the end of 2020. |
Business investment falls a cumulative 15 per cent below the OBR’s March forecast by the end of 2021 | Business investment falls a cumulative 15 per cent below the OBR’s March forecast by the end of 2021 |
This all adds up to higher borrowing, up around £30bn a year higher on average from 2020-21 onwards. | This all adds up to higher borrowing, up around £30bn a year higher on average from 2020-21 onwards. |
That’s because: | That’s because: |
Income tax and national insurance receipts fall, pushing up borrowing by around £16.5bn a year | Income tax and national insurance receipts fall, pushing up borrowing by around £16.5bn a year |
Capital tax receipts fall sharply thanks to the falls in asset prices, especially in the housing market, adding around £10 billion a year from 2020-21 onwards | Capital tax receipts fall sharply thanks to the falls in asset prices, especially in the housing market, adding around £10 billion a year from 2020-21 onwards |
VAT falls by £3bn a year, due to lower consumer spending | VAT falls by £3bn a year, due to lower consumer spending |
Lower profits take around £3bn off onshore corporation tax receipts | Lower profits take around £3bn off onshore corporation tax receipts |
Issues for the Government's response...For a comprehensive list of all risks we’ve raised and our latest assessment, download the Fiscal risk register: https://t.co/OofBCdCwBt pic.twitter.com/NDCK1rBwIt | Issues for the Government's response...For a comprehensive list of all risks we’ve raised and our latest assessment, download the Fiscal risk register: https://t.co/OofBCdCwBt pic.twitter.com/NDCK1rBwIt |
Labour MP Chris Leslie is also concerned: | Labour MP Chris Leslie is also concerned: |
Today’s @obr report on the dangers of a no-deal, no-transition #Brexit should be a massive wake up call to anyone thinking this would be just another political event. If you doubt this is a cliff edge, these negative statistics paint a pretty stark picture... #obrfiscalrisks pic.twitter.com/XufKboOhHJ | Today’s @obr report on the dangers of a no-deal, no-transition #Brexit should be a massive wake up call to anyone thinking this would be just another political event. If you doubt this is a cliff edge, these negative statistics paint a pretty stark picture... #obrfiscalrisks pic.twitter.com/XufKboOhHJ |
No-deal means £30billion pa black hole from next year+ as tax revenues fall, threatening vital public services. And 12% of GDP onto national debt by 2023. @OBR_UK add: “There is no war-chest or pot of money set aside” and this is a “relatively benign” scenario “compared to some”! | No-deal means £30billion pa black hole from next year+ as tax revenues fall, threatening vital public services. And 12% of GDP onto national debt by 2023. @OBR_UK add: “There is no war-chest or pot of money set aside” and this is a “relatively benign” scenario “compared to some”! |
John McDonnell, Labour’s shadow chancellor has seized on the OBR’s warnings, urging fellow MPs to vote against a no-deal Brexit today. | John McDonnell, Labour’s shadow chancellor has seized on the OBR’s warnings, urging fellow MPs to vote against a no-deal Brexit today. |
He says: | He says: |
“It’s obvious the Conservative Party constitutes a clear and present danger to the economy and the wellbeing of everyone in the UK. | “It’s obvious the Conservative Party constitutes a clear and present danger to the economy and the wellbeing of everyone in the UK. |
“We know that a No Deal Brexit would devastate the UK economy and the public finances, and it comes on top of the failed economic approach for the last nine years. | “We know that a No Deal Brexit would devastate the UK economy and the public finances, and it comes on top of the failed economic approach for the last nine years. |
“This warning makes it even more imperative MPs from across Parliament back today’s amendments to try and block the next Prime Minister from shutting down Parliament to force through a no-deal Brexit. | “This warning makes it even more imperative MPs from across Parliament back today’s amendments to try and block the next Prime Minister from shutting down Parliament to force through a no-deal Brexit. |
“The OBR says that the current Chancellor has ‘all but given up’ on his borrowing targets, with the Treasury having lost its grip on spending just as the Chancellor has lost control over the Brexit argument in the Conservative Party. | “The OBR says that the current Chancellor has ‘all but given up’ on his borrowing targets, with the Treasury having lost its grip on spending just as the Chancellor has lost control over the Brexit argument in the Conservative Party. |
MPs will vote on an amendment passed by the House of Lords, which would prevent parliament being shut down, or ‘prorogued’, ahead of the 31st October Brexit deadline. | MPs will vote on an amendment passed by the House of Lords, which would prevent parliament being shut down, or ‘prorogued’, ahead of the 31st October Brexit deadline. |
House of Lords passes amendment to help prevent no-deal Brexit | House of Lords passes amendment to help prevent no-deal Brexit |
The OBR’s report has been published as many firms grapple with the threat of no-deal Brexit chaos. | The OBR’s report has been published as many firms grapple with the threat of no-deal Brexit chaos. |
Clare Francis, head of Brexit advisory at law firm Pinsent Masons, says firms face ‘shock waves’ from a disorderly Brexit. | Clare Francis, head of Brexit advisory at law firm Pinsent Masons, says firms face ‘shock waves’ from a disorderly Brexit. |
“The OBR report brings the negative impact of a no-deal Brexit into sharp focus. For many this will send shockwaves through their business as they attempt to prepare for the very real possibility of a no-deal Brexit at the end of October. | “The OBR report brings the negative impact of a no-deal Brexit into sharp focus. For many this will send shockwaves through their business as they attempt to prepare for the very real possibility of a no-deal Brexit at the end of October. |
She warns that crashing out of the EU in late October is actually worse than exiting back in March: | She warns that crashing out of the EU in late October is actually worse than exiting back in March: |
“For Industries that are exposed to a seasonal flow of goods, such as food and retail, a winter time EU exit creates a more extreme economic risk compared to the original spring time date. This means that those businesses exposed to seasonal fluctuations must step up plans to hedge against a no-deal Brexit. Streamlining supply chains, switching to UK suppliers and realigning the workforce could all bolster the foundations of businesses grappling with Brexit risk.” | “For Industries that are exposed to a seasonal flow of goods, such as food and retail, a winter time EU exit creates a more extreme economic risk compared to the original spring time date. This means that those businesses exposed to seasonal fluctuations must step up plans to hedge against a no-deal Brexit. Streamlining supply chains, switching to UK suppliers and realigning the workforce could all bolster the foundations of businesses grappling with Brexit risk.” |
Here’s a clip of Philip Hammond warning against a no-deal Brexit: | Here’s a clip of Philip Hammond warning against a no-deal Brexit: |
“Even in the most benign version of a no-deal exit there would be a very significant hit to the UK economy" - @PhilipHammondUK responds to the OBR’s warnings.pic.twitter.com/AOrv4zom0T | “Even in the most benign version of a no-deal exit there would be a very significant hit to the UK economy" - @PhilipHammondUK responds to the OBR’s warnings.pic.twitter.com/AOrv4zom0T |