Tue, 19 October 2021

Newsletter sign-up

Subscribe now
The House Live All
Coronavirus
By Alex Hancock
Communities
Communities
Brexit
Press releases

UK set to enter recession under no-deal Brexit, warns government spending watchdog

UK set to enter recession under no-deal Brexit, warns government spending watchdog
3 min read

Britain’s economy will fall into recession and leave a £30bn black hole in the country’s finances if there is a no-deal Brexit, according to the Government’s spending watchdog.


The Office for Budget Responsibility warned that the UK’s economy could shrink by 2% by the end of 2020 – 4% below the group’s March forecast – if the next Prime Minister fails to reach an agreement with Brussels.

Tory leadership contenders Boris Johnson and Jeremy Hunt have both insisted they are prepared to deliver a no-deal Brexit.

But the OBR’s latest fiscal risks report, published on Thirsday morning, said such a scenario would be bad for the economy.

It said: “Heightened uncertainty and declining confidence deter investment, while higher trade barriers with the EU weigh on exports.

“Together, these push the economy into recession, with asset prices and the pound falling sharply.”

The body found that leaving without a deal would add £30bn a year to government borrowing from 2020-21 onwards and increase net debt by 12% of GDP by 2023-24.

OBR chairman Robert Chote said: "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. The economy and asset prices then recover somewhat over time."

Responding to the report, Chancellor Philip Hammond said: “The report 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 being talked about by prominent Brexiteers. They are talking about a much harder version which could 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."

Labour MP and campaigner for a People’s Vote, Rachel Reeves, said: “There is no mandate for No Deal. No Deal has never been put to the people in any shape or form.

“Yet an elite in Westminster now want to force it on us, despite all the costs and damage. They are even prepared to suspend Parliament, something not tried since the reign of Charles I, to ram this outrage through.

“However many votes Boris Johnson wins from the 0.25% of the population who are members of the Conservative Party, any plans he has for No Deal have no legitimacy and must be stopped. 

Jo Stevens, her colleague and a campaigner from the pro-EU Best for Britain group, said: “You can't have Brexit and an end to austerity. It's clear that no-deal would devastate our public finances.

“The Government keep telling us there's no money left yet we're still spending huge sums of money preparing for a no-deal cliff-edge.

“It's clear we must stop Brexit so that we can properly fund our NHS, schools and police forces."

PoliticsHome Newsletters

PoliticsHome provides the most comprehensive coverage of UK politics anywhere on the web, offering high quality original reporting and analysis: Subscribe

Read the most recent article written by Nicholas Mairs - Public sector workers to get 5% pay rise from April if Labour wins election

Categories

Brexit
Podcast
Engineering a Better World

Can technology deliver a better society? In a new podcast series from the heart of Westminster, The House magazine and the IET discuss with parliamentarians and industry experts how technology and engineering can provide policy solutions to our changing world.

New episode - Listen now