No-deal Brexit could push UK into recession, think tank warns

The impact of Brexit disruption in the UK could spill over to the global economy, the OECD said

A no-deal Brexit could push the UK into a recession, which could then spread through the global economy, according to the Organisation for Economic Co-operation and Development think tank.

In its latest economic outlook, the OECD said growth is expected to remain weak in the UK for the foreseeable future.

Based on a smooth Brexit and a transition period lasting until the end of 2020, the OECD has forecast GDP growth of below 1 per cent in the next two years.

However, a no-deal Brexit would reduce GDP by around 2 per cent in the UK for the next two years. The OECD said: “The effects could be stronger still if a lack of adequate border infrastructure and a loss of access to EU trade arrangements with third countries were to cause serious bottlenecks in integrated cross-border supply chains.”

The group said the costs associated with a cliff-edge departure from the EU could be magnified by a further decline in business and financial market confidence and disruption in financial markets.

“In such a scenario, the likely near-term recession in the United Kingdom would generate sizeable negative spillovers on growth in other countries,” the OECD said.

Meanwhile, the think tank said the impact of trade arrangements on WTO terms would vary across the EU, with smaller countries like Ireland, the Netherlands and Denmark “relatively exposed”. The biggest impact would be felt in the agriculture, machinery and equipment sectors.

The OECD’s predictions echo previous warnings from the Bank of England, which last year said a no deal could plunge the UK into a larger recession that the global financial crisis 10 years ago if a no-deal Brexit goes ahead.

Based on the bank’s worst case scenario modelling, the UK economy would contract by 8 per cent, house prices would fall by a third, unemployment would spike to 7.5 per cent, interest rates would shoot up to 5.5 per cent and the value of the pound would fall to below $1.