A no-deal Brexit would see the pound and GDP nosedive and inflation, unemployment and interest rates skyrocket, the Bank of England has warned, in the most apocalyptic of a series of forecasts it has released ahead of the meaningful vote on the withdrawal agreement.
The Banks five-year forecasts cover a range of Brexit scenarios, of which those for a no-deal are, unsurprisingly, the bleakest. Mark Carney, its governor, said the result would be a deeper recession than that which followed the financial crash in 2008.
Should the United Kingdom experience a “disorderly” Brexit without a divorce or transition, the Bank forecasts that GDP would drop by 8 per cent, unemployment would rise to 7.5 per cent, house prices would fall by 30 per cent, inflation would spike to 6.5 per cent and the Bank would hike interest rates to 5.5 per cent. Sterling would drop to 25 per cent below parity with the dollar and a dramatic rise in the number of people leaving the UK would see net migration go from positive to negative.
Carneys deputy, Ben Broadbent, said such a scenario would represent only the second worst year for the British economy ever. The very worst was 1925, when GDP dropped by a fifth after Britain rejoined the gold standard.
The Bank also concluded that Britains financial institutions could withstand the shock, and have "levels of capital and liquidity to withstand even a severe economic shock that could be associated with a disorderly Brexit”.
The Bank also modelled a less severe, “disruptive no-deal, no-transition scenario”, which would see tariffs between the UK and EU “introduced suddenly” and no new trade deals signed in the first five years after Brexit. (The UK would replicate trade deals it had by dint of EU membership.)
That forecast sees GDP would fall by 3 per cent, and inflation and unemployment would spike to 4.25 and 5.75 per cent respectively. The pounds value against the dollar would fall by up to 15 per cent to 1.10 and house prices would drop by 15 per cent.
Both of the agreed scenarios the Bank forecast would see the economy shrink. In a “close relationship” scenario, where a partial deal would be agreed on financial services and no new customs checks or regulatory barriers introduced, the economy would end up 1 per cent smaller. In a “less close relationship”, where there would the same arrangements for financial services but customs checks and regulatory checks would be introduced in 2021, GDP would fall by 3.75 per cent.
Gloomy though the figures may be, they are unlikely to move the political dial ahead of the meaningful vote. Tory Brexiteers are especially dismissive of forecasts from the government and the Bank, and have already dismissed this evenings announcement as another iteration of “Project Fear”. Jacob Rees-Mogg, for example, described Carney as “a failed second rate Canadian politician who is talking down the pound” and described the forecasts as “Project Hysteria”.
Patrick Maguire is the New Statesman's political correspondent.