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No-deal Brexit will cause UK recession, says fiscal watchdog | No-deal Brexit will cause UK recession, says fiscal watchdog |
(32 minutes later) | |
The UK will fall into recession next year if there is a no-deal Brexit, the country's spending watchdog has said. | |
The Office for Budget Responsibility (OBR) said economic growth would fall by 2% by the end of 2020 if it left the bloc without an agreement. | The Office for Budget Responsibility (OBR) said economic growth would fall by 2% by the end of 2020 if it left the bloc without an agreement. |
This would effectively forgo about 18 months of growth in Britain. | This would effectively forgo about 18 months of growth in Britain. |
Chances of a no-deal outcome have risen recently, after both Tory leadership contenders said they would be willing to leave the EU without a deal. | Chances of a no-deal outcome have risen recently, after both Tory leadership contenders said they would be willing to leave the EU without a deal. |
The UK is set to leave the European Union on 31 October. | The UK is set to leave the European Union on 31 October. |
In its first assessment of the economic impact of a no-deal scenario, the OBR said the UK economy would contract in 2020 before recovering in 2021. | In its first assessment of the economic impact of a no-deal scenario, the OBR said the UK economy would contract in 2020 before recovering in 2021. |
This would come as tariffs of 4% were imposed on goods traded with the EU - up from zero currently - although it does not expect there to be disruption at the border. | This would come as tariffs of 4% were imposed on goods traded with the EU - up from zero currently - although it does not expect there to be disruption at the border. |
In this scenario, "heightened uncertainty and declining confidence" would deter investment, while higher trade barriers with the EU would "weigh on exports". | In this scenario, "heightened uncertainty and declining confidence" would deter investment, while higher trade barriers with the EU would "weigh on exports". |
"Together, these push the economy into recession, with asset prices and the pound falling sharply," it said. | "Together, these push the economy into recession, with asset prices and the pound falling sharply," it said. |
It added this would push up public sector borrowing by £30bn a year, leaving debt 12% higher by 2024. | |
Analysis: | Analysis: |
By Faisal Islam, BBC economics editor | By Faisal Islam, BBC economics editor |
The government's official independent budgetary watchdog has for the first time put a price on the impact to the public finances of leaving the European Union without a deal. | |
The numbers come at a sensitive time politically when both likely future Prime Ministers suggest that a no-deal Brexit is possible this year. | The numbers come at a sensitive time politically when both likely future Prime Ministers suggest that a no-deal Brexit is possible this year. |
The OBR is legally obliged to consider all threats to the public finances, and today's new numbers come as part of its biannual Fiscal Risks report. | The OBR is legally obliged to consider all threats to the public finances, and today's new numbers come as part of its biannual Fiscal Risks report. |
The fall in tax revenue is forecast to significantly outweigh any benefit from no longer paying the UK's subscription fee as a member of the EU. | The fall in tax revenue is forecast to significantly outweigh any benefit from no longer paying the UK's subscription fee as a member of the EU. |
The numbers show a deep crisis-like impact on the public finances, and are based on the IMF's projections for the economy. | The numbers show a deep crisis-like impact on the public finances, and are based on the IMF's projections for the economy. |
But they go further, showing a long-run hit to the economy. | But they go further, showing a long-run hit to the economy. |
The forecast is less severe than those of the Bank of England and the Treasury, although the OBR said it was "by no means a worst-case scenario". | The forecast is less severe than those of the Bank of England and the Treasury, although the OBR said it was "by no means a worst-case scenario". |
In November, the Bank said a no-deal outcome could send the pound plunging and trigger a worse recession than the 2008 financial crisis. | In November, the Bank said a no-deal outcome could send the pound plunging and trigger a worse recession than the 2008 financial crisis. |
The economy would shrink 8% in the immediate aftermath if there was no transition period, the Bank said. | The economy would shrink 8% in the immediate aftermath if there was no transition period, the Bank said. |
The Treasury meanwhile predicts a £90bn hit to the economy by 2035 - although prominent eurosceptics dispute this view. | The Treasury meanwhile predicts a £90bn hit to the economy by 2035 - although prominent eurosceptics dispute this view. |
In a comment piece for the Telegraph newspaper earlier this week, Conservative backbencher Jacob Rees-Mogg called the forecast "silliness", adding that a no-deal scenario could instead boost the economy by £80bn. | In a comment piece for the Telegraph newspaper earlier this week, Conservative backbencher Jacob Rees-Mogg called the forecast "silliness", adding that a no-deal scenario could instead boost the economy by £80bn. |
Chancellor Philip Hammond later tweeted that he found this view "terrifying", given Mr Rees-Mogg is tipped for a role in government in the future. | Chancellor Philip Hammond later tweeted that he found this view "terrifying", given Mr Rees-Mogg is tipped for a role in government in the future. |
The chances of a no-deal appear to have risen in recent weeks after both candidates in the race to replace Theresa May hardened their positions on the controversial Irish backstop - an insurance policy to prevent a hard border on the island of Ireland after Brexit. | The chances of a no-deal appear to have risen in recent weeks after both candidates in the race to replace Theresa May hardened their positions on the controversial Irish backstop - an insurance policy to prevent a hard border on the island of Ireland after Brexit. |
Jeremy Hunt and Boris Johnson both said the backstop was "dead", but the EU said it would not support any deal that excludes it. | Jeremy Hunt and Boris Johnson both said the backstop was "dead", but the EU said it would not support any deal that excludes it. |
In an interview with the BBC's Panorama programme - conducted in May before the start of the Conservative leadership contest - the EU's chief Brexit negotiator, Michel Barnier, said the UK would have to "face the consequences" if it opted to leave without a deal. | In an interview with the BBC's Panorama programme - conducted in May before the start of the Conservative leadership contest - the EU's chief Brexit negotiator, Michel Barnier, said the UK would have to "face the consequences" if it opted to leave without a deal. |
Mr Barnier said the thrice-rejected withdrawal agreement negotiated by Theresa May was the "only way to leave the EU in an orderly manner". | Mr Barnier said the thrice-rejected withdrawal agreement negotiated by Theresa May was the "only way to leave the EU in an orderly manner". |