Britain risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago if it leaves the European Union in the worst-case Brexit scenario in four months' time, the Bank of England said on Wednesday.
Hours after the British government issued its own stark warning about the risks of a no-deal Brexit, the central bank said the economy could contract by as much as 8 per cent in the space of about a year.
The separate reports could add to pressure on MPs to drop their opposition to a Brexit agreement that prime minister Theresa May struck with other EU leaders on Sunday, which is far from certain to be approved in parliament on December 11th.
The BoE said the “disorderly” scenario, involving severe delays at UK borders and financial markets’ loss of confidence in British institutions, was not its base case.
But if it happened, there would be a 25 per cent tumble in the value of sterling , taking it close to parity against the dollar, a spike in inflation to 6.5 per cent and a jump in interest rates. House prices would fall by 30 per cent.
A merely “disruptive” Brexit, with goods flowing across borders but facing tariffs and other barriers, would cause a 3 per cent fall in gross domestic product, the central bank warned.
“Our jobs is not to hope for the best but to prepare for the worst,” central bank governor Mark Carney told reporters at a news conference.
Hours earlier, the government acknowledged that any Brexit option would be worse for the economy than staying in the EU, but said that leaving the bloc without any agreement with Brussels would weigh heavily on growth at least into the 2030s.
By contrast, the plan that Mrs May agreed with EU leaders on Sunday "delivers an outcome that is very close to the economic benefits of remaining in", finance minister Philip Hammond said.
More “project fear”
The government report was immediately criticised by supporters of a more definitive break with Brussels as a “Project Fear” attempt to scare opponents of Mrs May’s plan.
But opponents of Brexit said it undermined promises by Brexit campaigners that leaving the EU would make Britain, and Britons, more prosperous.
"These figures show that the government's stated policy is to make our economy smaller and weaker," said David Lammy, a Labour Party MP who wants Britain to stay in the EU.
The government said that, in a scenario based on the Brexit plan that Mrs May announced in July, rather than Sunday’s amended agreement with EU leaders, national output would be 2.1 per cent smaller in just over 15 years’ time than if Britain remained in the bloc.
If there was no deal, it would be 7.7 per cent smaller.
The government’s forecasts assumed for the purposes of comparison that there would be no changes to migration rules, but that some non-tariff trade barriers would be introduced.
However, perceptions that immigration was too high under the EU’s freedom of movement policy were a key reason why many Britons voted in 2016 to leave the EU.
Assuming there was zero net migration from the EU in the future, the hit to the economy would be bigger: 3.9 per cent under Mrs May’s deal, and 9.3 per cent without a deal.
The report said Britain’s automotive and chemicals sectors faced the biggest potential losses from a no-deal Brexit - more than 20 per cent of output. – Reuters