“The core of the UK financial system is ready for Brexit whatever form it takes,” said Mark Carney, Bank of England governor
(Bloomberg) — The U.K. could suffer the worst economic
slump since at least World War II if Prime Minister Theresa May
fails to get her Brexit plan past lawmakers and the country
crashes out of the European Union without a deal.
The stark warning from the Bank of England sees the economy
shrinking by 8 percent within a year and property prices
plunging almost a third under a worst-case scenario. For
context, the peak to trough drop in U.K. GDP in the financial
crisis was just over 6 percent.
Meanwhile, questions about the credibility of the U.K.
would send sterling into a tailspin, forcing the central bank
forced to hike interest rates sharply to combat inflation.
Here are the main points in the “disorderly” Brexit
* GDP drops 8%
* House prices fall 30%
* Commercial property prices plunge 48%
* Sterling falls 25% to below parity with the dollar
* Unemployment rises to 7.5%
* Inflation accelerates to 6.5%
* BOE benchmark rate rises to 5.5% and averages 4% over 3 years
* Britain goes from net migration to net outflows of people
The BOE analysis, carried out in response to a request from
a committee of lawmakers, is the latest to highlight the dangers
from having no new trade arrangements in place by the time
Britain leaves the EU on March 29.
May is pushing her EU Withdrawal Agreement, but it’s not
clear she will have the numbers to get it through Parliament in
a crunch vote on Dec. 11.
If it’s rejected, the U.K. will be on course to crash out
into a legal limbo, with no special rules in place to regulate
trade with the bloc. Earlier, the Treasury provided its own
longer-term analysis, which also includes a hit to growth and
incomes under any Brexit option.
The BOE said a disorderly Brexit would involve Britain
losing the trade agreements it enjoys through EU membership, and
border and customs infrastructure would be unable to cope.
But it’s not clear the gloomy report will change much.
While anti-Brexit groups will see it as reinforcing their
argument, those in favor of leaving are likely to accuse
Governor Mark Carney of reviving what they call “Project Fear.”
The BOE made clear that a chaotic departure is not its
assumption. It provided other options from what it calls a
disruptive Brexit to the economic partnership with the EU sought
While a disorderly situation would leave GDP as much as
10.5 percent lower by the end of 2023 relative to remaining in
the EU, the loss diminishes to less than 4 percent under an
agreement that maintains close ties.
The immediate hit to the economy from a disruptive Brexit,
under which WTO tariffs and other barriers are introduced
suddenly, would be about 3 percent, the BOE said. The decline in
house prices would be 14 percent.
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