No-deal Brexit could push UK into recession, think tank warns

A no-deal Brexit could push the UK into a recession, which could then spread through the global economy, according to a new report from the Organisation for Economic Co-operation and Development (OECD).

In its latest economic outlook, the think tank said growth is expected to remain weak in the UK for the foreseeable future.

Based on a smooth Brexit and a transition period that lasts until the end of 2020, the OECD has forecast GDP growth of below 1 per cent in the next two years.

However, a no-deal Brexit would reduce GDP by around 2 per cent in the UK for the next two years, and the OECD added: “The effects could be stronger still if a lack of adequate border infrastructure and a loss of access to EU trade arrangements with third countries were to cause serious bottlenecks in integrated cross-border supply chains.”

The group said the costs associated with a cliff-edge departure from the EU could be magnified by a further decline in business and financial market confidence and disruption in financial markets.

“In such a scenario, the likely near-term recession in the United Kingdom would generate sizeable negative spillovers on growth in other countries,” the OECD said.

Meanwhile, the think tank said the impact of trade arrangements on WTO terms would vary across the EU, with smaller countries like Ireland, the Netherlands and Denmark “relatively exposed”. The biggest impact would be felt in the agri-food and machinery and equipment sectors.

The OECD’s predictions echo previous warnings from the Bank of England, which said last year that the UK could be plunged into a larger recession that the global financial crisis 10 years ago if a no-deal Brexit goes ahead.

Based on the Bank’s worst case scenario modelling, the UK economy would contract by 8 per cent, house prices would fall by a third, unemployment would spike to 7.5 per cent, interest rates would shoot up to 5.5 per cent and the value of the pound would fall to below $1.

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