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Be careful! - Central bank warns of deep recession without Brexit deal

Published:Wednesday | November 28, 2018 | 12:00 AM
AP
Governor of the Bank of England Mark Carney gestures as he hosts a Financial Stability Report press conference at the Bank of England in central London yesterday.

LONDON (AP):

Leaving the European Union without a divorce deal could plunge Britain into its deepest recession in nearly a century, with the economy shrinking eight per cent within months as unemployment and inflation soar, the Bank of England warned on Wednesday.

The stark projection came the same day the government's own economists said the country will be poorer after Brexit than if it had stayed in the EU, no matter what sort of trade deal it secures with the bloc.

Britain and the EU have agreed on a deal for the smooth exit in March. But British lawmakers are threatening to derail it, and Prime Minister Theresa May is battling to persuade them to support her agreement when Parliament votes next month.

 

POSSIBLE REJECTION

 

May says that if Parliament rejects her deal, Britain could be headed for an economically disruptive "no deal" Brexit on March 29.

The central bank said in a worst-case scenario that could mean Britain's economy slumps far more than it had after the 2008 global financial crisis.

It predicted that in a no-deal scenario - with tariffs and other trade barriers, and no transition period to help businesses adapt - inflation would rise to almost 7 per cent, unemployment would soar to 7.5 per cent from 4.1 per cent now, the pound would fall to near parity with the dollar and house prices would fall 30 per cent.

"Our job is not to hope for the best but to prepare for the worst", said Bank of England Governor Mark Carney.

 

ECONOMY CAN SURVIVE

 

Despite the gloom the British economy faces in the event of a "disorderly and disruptive Brexit," he said the UK financial system was robust enough to weather the shock.

The central bank said that in the worst-case scenario, the economy would end up being between 4.75 per cent and 7.75 per cent smaller by the end of 2023 than in its most recent forecasts this month. And compared with the path projected before the June 2016 Brexit referendum, the bank said the economy could be 10.5 per cent smaller.