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You can find the current article at its original source at https://www.theguardian.com/business/live/2019/jul/18/no-deal-brexit-uk-recession-obr-fiscal-risks-retail-sales-business-live
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| Britain at risk of 'full-blown' recession as no-deal Brexit looms - business live | Britain at risk of 'full-blown' recession as no-deal Brexit looms - business live |
| (32 minutes later) | |
| 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 | |
| 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 |
| The @OBR_UK says candidates are making “expensive” pledges and suggests they may be unaffordable in event of No Deal in October. Johnson would cut income tax by £9 bn, Hunt would hike defence spending by £15 bn. OBR calculates cost of “benign” No Deal is £30 bn/ year. pic.twitter.com/62zO04lk10 | The @OBR_UK says candidates are making “expensive” pledges and suggests they may be unaffordable in event of No Deal in October. Johnson would cut income tax by £9 bn, Hunt would hike defence spending by £15 bn. OBR calculates cost of “benign” No Deal is £30 bn/ year. pic.twitter.com/62zO04lk10 |
| Philip Hammond, UK chancellor (for a few more days, anyway) has weighed in -- saying that a no-deal Brexit could be even more severe than the OBR has suggested. | Philip Hammond, UK chancellor (for a few more days, anyway) has weighed in -- saying that a no-deal Brexit could be even more severe than the OBR has suggested. |
| He told Sky News: | He told Sky News: |
| 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. | 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. |
| But that most benign version is not the version that is being talked about by prominent Brexiters. 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. | But that most benign version is not the version that is being talked about by prominent Brexiters. 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. | 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. |
| Andrew Sparrow’s Politics Live blog has all the details. | Andrew Sparrow’s Politics Live blog has all the details. |
| Hammond says OBR forecast understates how bad a Boris Johnson no-deal Brexit could be - https://t.co/2SHwAM3OeW | Hammond says OBR forecast understates how bad a Boris Johnson no-deal Brexit could be - https://t.co/2SHwAM3OeW |
| The OBR has also cautioned Boris Johnson and Jeremy Hunt against making extravagant pledges -- warning that there’s no money for a ‘free lunch’. | The OBR has also cautioned Boris Johnson and Jeremy Hunt against making extravagant pledges -- warning that there’s no money for a ‘free lunch’. |
| Today’s fiscal risks report says: | Today’s fiscal risks report says: |
| It must be understood that additional tax cuts or spending increases would push government borrowing and debt up from the levels expected in our forecasts and that there is no war-chest or pot of money set aside that would make them a free lunch. | It must be understood that additional tax cuts or spending increases would push government borrowing and debt up from the levels expected in our forecasts and that there is no war-chest or pot of money set aside that would make them a free lunch. |
| The Government does have room for manoeuvre against its ‘fiscal mandate’ for structural borrowing next year, but that does not provide an anchor for medium term tax and spending decisions. | The Government does have room for manoeuvre against its ‘fiscal mandate’ for structural borrowing next year, but that does not provide an anchor for medium term tax and spending decisions. |
| Both Johnson and Hunt have made expensive pledges during their battle to become Conservative Party leader, often based on the Brexit ‘war chest’ set aside by chancellor Philip Hammond. | Both Johnson and Hunt have made expensive pledges during their battle to become Conservative Party leader, often based on the Brexit ‘war chest’ set aside by chancellor Philip Hammond. |
| That, though, is simply extra borrowing not a wodge of cash - and it won’t be free if Britain crashes out of the EU. | That, though, is simply extra borrowing not a wodge of cash - and it won’t be free if Britain crashes out of the EU. |
| “There is no war-chest or pot of money set aside that would make them a free lunch”. The @OBR_UK’s warning to Boris Johnson and Jeremy Hunt pic.twitter.com/mG5GapbTdJ | “There is no war-chest or pot of money set aside that would make them a free lunch”. The @OBR_UK’s warning to Boris Johnson and Jeremy Hunt pic.twitter.com/mG5GapbTdJ |
| The OBR are now taking questions from journalists at the fiscal risks press conference. | The OBR are now taking questions from journalists at the fiscal risks press conference. |
| Unfortunately they’ve turned the live feed off. Fortunately the BBC’s Faisal Islam is tweeting. | Unfortunately they’ve turned the live feed off. Fortunately the BBC’s Faisal Islam is tweeting. |
| OBR’s Robert Chote tells me that this stress test is not a worst case scenario, and it isn’t even the IMF’s worst case scenario. | OBR’s Robert Chote tells me that this stress test is not a worst case scenario, and it isn’t even the IMF’s worst case scenario. |
| Chote - The Chancellor’s £90bn a year number on the hit to public finances is a longer run assessment... the £80bn a year benefit referred to by JAcob Rees Mogg “is a view at one end of the spectrum” | Chote - The Chancellor’s £90bn a year number on the hit to public finances is a longer run assessment... the £80bn a year benefit referred to by JAcob Rees Mogg “is a view at one end of the spectrum” |
| OBR also assumes a package of fiscal support from the Government after a No Deal of £10bn a year to tariff affected businesses in agriculture and manufacturing and non-tariff barrier affected service sector | OBR also assumes a package of fiscal support from the Government after a No Deal of £10bn a year to tariff affected businesses in agriculture and manufacturing and non-tariff barrier affected service sector |
| Sky’s Ed Conway also points out that the OBR could have taken a more pessimistic view (but didn’t): | Sky’s Ed Conway also points out that the OBR could have taken a more pessimistic view (but didn’t): |
| Worth underlining a couple of things about @OBR_UK report. 1. no deal scenario was actually put together by IMF earlier this yr. OBR simply extrapolating fiscal impact. 2. this is hardly the most pessimistic no deal scenario. IMF had a more pessimistic option OBR has ignored | Worth underlining a couple of things about @OBR_UK report. 1. no deal scenario was actually put together by IMF earlier this yr. OBR simply extrapolating fiscal impact. 2. this is hardly the most pessimistic no deal scenario. IMF had a more pessimistic option OBR has ignored |
| In conclusion, Robert Chote says that many of the shocks, pressures and risks “taken on by choice” by the EU referendum are largely the same as two years ago. | In conclusion, Robert Chote says that many of the shocks, pressures and risks “taken on by choice” by the EU referendum are largely the same as two years ago. |
| However, he warns that recent developments make no-deal a larger threat, warning: | However, he warns that recent developments make no-deal a larger threat, warning: |
| Brexit risks feel more prominent than two years ago, with no deal being countenanced at the highest levels, amid considerable uncertainty about what that would mean in practice. | Brexit risks feel more prominent than two years ago, with no deal being countenanced at the highest levels, amid considerable uncertainty about what that would mean in practice. |
| OBR chairman Chote also points out that the government appears to be losing its enthusiasm for balanced budgets. | OBR chairman Chote also points out that the government appears to be losing its enthusiasm for balanced budgets. |
| He says the risks from austerity fatigue have “partly crystallised”, through higher health spending, while others are forming through the “shopping lists” of tax cuts and spending rises drawn up by Boris Johnson and Jeremy Hunt | He says the risks from austerity fatigue have “partly crystallised”, through higher health spending, while others are forming through the “shopping lists” of tax cuts and spending rises drawn up by Boris Johnson and Jeremy Hunt |
| Finally, there is an “open discussion” about how the goal of achieving a balanced budget by the mid-2020s might be replaced by something loose, he concludes. | Finally, there is an “open discussion” about how the goal of achieving a balanced budget by the mid-2020s might be replaced by something loose, he concludes. |
| That’s the end of his statement. | That’s the end of his statement. |
| Robert Chote adds that a no-deal Brexit would drive up inflation, due to new tariffs and the plunging pound | Robert Chote adds that a no-deal Brexit would drive up inflation, due to new tariffs and the plunging pound |
| But the OBR predicts that the Bank of England could choose to cut interest rates, tolerating higher prices in the shops, to prop up the economy and bring output back to its potential. | But the OBR predicts that the Bank of England could choose to cut interest rates, tolerating higher prices in the shops, to prop up the economy and bring output back to its potential. |
| The economic shock of no-deal would push up government borrowing would rise by around £30bn a year, Chote add. | The economic shock of no-deal would push up government borrowing would rise by around £30bn a year, Chote add. |
| Income tax and national insurance would fall (because jobs would be lost) | Income tax and national insurance would fall (because jobs would be lost) |
| Capital tax receipts fall sharply due to falling house prices and fewer transactions | Capital tax receipts fall sharply due to falling house prices and fewer transactions |
| Debt spending would fall, though, due to lower interest rates | Debt spending would fall, though, due to lower interest rates |
| This chart shows the details (anything above the x-axis is an extra cost, below the line are savings). | This chart shows the details (anything above the x-axis is an extra cost, below the line are savings). |
| Chote adds that the OBR assumes that the UK’s current payments into the EU budget are simply “recycled into domestic spending, including the divorce bill”. | Chote adds that the OBR assumes that the UK’s current payments into the EU budget are simply “recycled into domestic spending, including the divorce bill”. |
| Onto Brexit! | Onto Brexit! |
| Robert Chote says the OBR’s economics have crunched the fiscal impact of a no-deal Brexit, and concluded that it would push the UK economy into recession. | Robert Chote says the OBR’s economics have crunched the fiscal impact of a no-deal Brexit, and concluded that it would push the UK economy into recession. |
| In a timely warning to Boris Johnson and Jeremy Hunt, he says: | In a timely warning to Boris Johnson and Jeremy Hunt, he says: |
| 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. | 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. | These factors combine to push the economy into recession. |
| These charts (based on the IMF’s latest work) show the scale of the damage: | These charts (based on the IMF’s latest work) show the scale of the damage: |
| The OBR has also looked at the risk that climate change poses to the UK’s finances. | The OBR has also looked at the risk that climate change poses to the UK’s finances. |
| OBR chief Robert Chote tells the press conference that the scale of the risks depends hugely on the extent to which global temperatures rise (fair enough!). | OBR chief Robert Chote tells the press conference that the scale of the risks depends hugely on the extent to which global temperatures rise (fair enough!). |
| If the targets outlined in the Paris Agreement are met, then climate change could be less costly than other threats, Chote suggests. | If the targets outlined in the Paris Agreement are met, then climate change could be less costly than other threats, Chote suggests. |
| However... | However... |
| But if global mitigation fails, and temperature rises are more significant, the risks could be greater and harder to assess. | But if global mitigation fails, and temperature rises are more significant, the risks could be greater and harder to assess. |
| This would make mass international migration and induced period of conflict more likely. | This would make mass international migration and induced period of conflict more likely. |
| OBR chief Robert Chote is now outlining a list of spending risks that could threaten the UK. | OBR chief Robert Chote is now outlining a list of spending risks that could threaten the UK. |
| Medium term risks include: austerity fatigue, health spending and welfare reforms. | Medium term risks include: austerity fatigue, health spending and welfare reforms. |
| Long-term risks include social care costs, Britain’s ageing population, and the pensions ‘triple-lock’ (under which pensions rise by inflation, wage growth, or at least 2%). | Long-term risks include social care costs, Britain’s ageing population, and the pensions ‘triple-lock’ (under which pensions rise by inflation, wage growth, or at least 2%). |
| On social care, Chote says it would be “nice” to present some new analysis, but as the government’s response to the Dilnot Review has been languishing in Whitehall for years, the OBR can’t crunch the numbers. | On social care, Chote says it would be “nice” to present some new analysis, but as the government’s response to the Dilnot Review has been languishing in Whitehall for years, the OBR can’t crunch the numbers. |
| He also tacitly criticises the decision to remove free TV licences from over-75s, saying it is “unusual” to delegate decisions about welfare benefits to a broadcasting company [the BBC]. | He also tacitly criticises the decision to remove free TV licences from over-75s, saying it is “unusual” to delegate decisions about welfare benefits to a broadcasting company [the BBC]. |
| Our economics editor Larry Elliott has swiftly analysed the OBR’s Brexit forecasts, and reports: | Our economics editor Larry Elliott has swiftly analysed the OBR’s Brexit forecasts, and reports: |
| A no-deal Brexit would plunge Britain into a recession that would shrink the economy by two per cent by the end of next year, according to the Government’s independent forecasting body. | A no-deal Brexit would plunge Britain into a recession that would shrink the economy by two per cent by the end of next year, according to the Government’s independent forecasting body. |
| The Office for Budget Responsibility said increased uncertainty and falling confidence would deter investment and hit trade. | The Office for Budget Responsibility said increased uncertainty and falling confidence would deter investment and hit trade. |
| In its latest Fiscal Risks Report the OBR said: “Together, these push the economy into recession, with asset prices and the pound falling sharply.“ | In its latest Fiscal Risks Report the OBR said: “Together, these push the economy into recession, with asset prices and the pound falling sharply.“ |
| Real GDP falls by 2% by the end of 2020 and is 4% below our March forecast by that point.” | Real GDP falls by 2% by the end of 2020 and is 4% below our March forecast by that point.” |
| Up until now the OBR has been assuming a smooth Brexit when coming up with its forecasts but it said the willingness of both Boris Johnson and Jeremy Hunt to contemplate a no deal departure meant it was stress testing alternative scenarios. | Up until now the OBR has been assuming a smooth Brexit when coming up with its forecasts but it said the willingness of both Boris Johnson and Jeremy Hunt to contemplate a no deal departure meant it was stress testing alternative scenarios. |
| The OBR said leaving without a deal would add £30bn a year to borrowing from 2020-1 onwards and lift the net debt by 12% of GDP by 2023-4. | The OBR said leaving without a deal would add £30bn a year to borrowing from 2020-1 onwards and lift the net debt by 12% of GDP by 2023-4. |
| “A more disruptive or disorderly scenario could hit the public finances much harder” the OBR said. | “A more disruptive or disorderly scenario could hit the public finances much harder” the OBR said. |
| The OBR used the IMF model of the economy to make its forecasts. | The OBR used the IMF model of the economy to make its forecasts. |