No-deal Brexit could cause worse economic slump than 2008 financial crash, Bank of England warns

Posted On: 
28th November 2018

A no-deal Brexit could cause a bigger economic slump than the 2008 financial crash, the Bank of England has warned.

Bak of England governor Mark Carney.
Credit: 
PA

Analysis carried out by the central bank for the Treasury Select Committee found that a “disorderly Brexit” would see unemployment soar to 7.5%, inflation rocket to 6.5% and house prices plummet by 30%.

Disruption at UK borders and no new trade deals with other countries would see the UK economy shrink by nearly 8%, the Bank said. During the financial crisis 10 years ago, GDP fell by 6.5%.

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The Bank also modelled a less severe but still “disruptive” no-deal Brexit, which it says could see GDP tumble by by 3% and inflation rise by 4.5%.

Launching the analysis, Bank of England governor Mark Carney said: "These are scenarios not forecasts. They illustrate what could happen not necessarily what is most likely to happen.

But he added: "Taken together the scenarios highlight that the impact of Brexit will depend on the direction, magnitude and speed of the effect of reduced openness of the UK economy.”

Despite the gloomy predictions - which triggered an immediate and furious reaction from Brexiteers - the central Bank concluded that the financial system would not face meltdown even under the most severe form of Brexit.,

It said the UK’s financial sector “is strong enough to continue to serve households and businesses even in the event of a disorderly Brexit”.

But Tory eurosceptics immediately renewed their attack on the central Bank, with Jacob Rees-Mogg saying: “It is unusual for the Bank of England to talk down the pound and shows the Governor's failure to understand his role. He is not there to create panic.”

Meanwhile Treasury Committee member Charlie Elphicke - also part of the European Research Group of Brexiteers - said: "The other day Dr Carney told the Treasury Select Committee that interest rates could go down in a no deal Brexit. Today he says they will rise. The Bank of England is all over the place.”

Dr Carney pushed back at claims the Bank’s warnings represented a return to the so-called ‘Project Fear’ campaign used by the Remain side in the 2016 referendum

He told a press conference designed to launch the analysis: “We’ve been absolutely clear. Our job is not to hope for the best but to prepare for the worst.”

The 88-page analysis comes less than two weeks before MPs vote on Theresa May’s Brexit deal.

The Government’s own analysis today acknowledged that under any Brexit scenario, the UK's GDP will be smaller in 15 years' time than it would have been had the country stayed in the EU.

Shadow Chancellor John McDonnell said: "The Bank has confirmed what other independent reports this week have been telling us: a No Deal Brexit could be even worse than the financial crisis of ten years ago, and the country would be much worse under Theresa May’s deal.

"Instead of ploughing on with this discredited deal the Government should set new priorities that would protect jobs and the economy."