No-deal could cause £30bn economic hit

Public borrowing could double next year if there is a no-deal Brexit, the country’s spending watchdog says.

The Office for Budget Responsibility (OBR) said borrowing would be almost £60bn if the UK leaves without a deal – up from £29.3bn if it does get a deal.

The watchdog said this scenario was based on assumptions that a no-deal Brexit would cause a UK recession.

The UK is set to leave the European Union on 31 October.

Chances of a no-deal outcome appear to have risen recently, after both Tory leadership contenders said they would be willing to leave the EU without a deal.

The OBR was created in 2010 to give independent analysis of the UK’s public finances.

In its first assessment of the economic impact of a no-deal scenario, the OBR used IMF analysis that shows the UK economy would contract by 2% in 2020 before recovering in 2021.

This would come as tariffs of 4% were imposed on goods traded with the EU – up from zero currently – although the IMF does not expect there to be disruption at the border.

In this scenario, the OBR said that “heightened uncertainty and declining confidence” would deter investment, while higher trade barriers with the EU would “weigh on exports”.

“Together, these push the economy into recession, with asset prices and the pound falling sharply,” it said.

It said this could push up public sector borrowing, leaving debt 12% higher by 2024.

The OBR added this was “not necessarily the most likely outcome” but also “by no means the worst case scenario”.

It also warned that both Conservative leadership contenders had made “a series of uncosted proposals for tax cuts and spending increases that would be likely to increase government borrowing by tens of billions of pounds if implemented”.

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell