A no-deal Brexit would be likely to tip the UK into a recession that would last as long as the downturn following the 2008 financial crisis, ratings agency Standard & Poor’s has warned.
S&P said Britain would go into a “moderate” recession lasting four to five quarters if the UK leaves the EU with no deal in place, which would shrink the economy by 1.2 per cent in 2019 and a further 1.5 per cent in 2020.
“Most of the economic loss of about 5.5 percent (of) GDP over three years compared to our base case would likely be permanent,” S&P said.
Meanwhile, unemployment would rise to above 7 per cent from around 4 per cent now and house prices would fall by 10 per cent over two years, S&P said.
The last recession to hit Britain continued for five quarters, and resulted in the economy shrinking by more than 6 per cent. Wages have yet to recover to pre-crisis levels.
“Our base-case scenario is that the UK and the EU will agree and ratify a Brexit deal,” S&P Global Ratings credit analyst Paul Watters said. “But we believe the risk of a no-deal has increased sufficiently to become a relevant rating consideration.”
S&P’s warning comes as talks between the UK and the EU remain at a standstill due to a failure to agree on the backstop arrangement for the Irish border.
The ratings agency's predictions contrast dramatically with the government’s forecasts of 1.6 per cent growth next year and 1.4 per cent growth in 2020, which the chancellor announced in his Budget earlier this week.
However, those projections are based on a smooth Brexit, and the Office for Budget Responsibility has warned that its forecasts could be changed rapidly in the event of a chaotic Brexit.
Philip Hammond also said that a no-deal Brexit would result in a new Budget.
