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Britain forecasts doomsday no-deal Brexit

November 28, 2018

A government report says Britain risks severely damaging its economy if lawmakers fail to approve a proposed Brexit deal. Staying in the European Union would be a far better option, the UK's treasury chief argued.

Silhouette of Westminster during a sunset
Image: picture-alliance/empics/Y. Mok

The British government on Wednesday published a report that spelled out a devastating scenario for the economy if Britain leaves the European Union in March 2019 without a deal.

The report found that the economy would only be around 2 percent smaller in 15 years time if it exited the bloc under terms similar to the British-EU draft deal agreed to last week. In a no-deal Brexit, the economy would be nearly 8 percent smaller and could shrink by up to 9.3 percent in the event of significant trade barriers.

"If the only consideration, the only consideration, was the economy, then the analysis shows clearly remaining in the European Union would be a better outcome for the economy, but not by much," British Treasury chief Philip Hammond told BBC earlier on Wednesday.

British pound notes
In every Brexit scenario, Britain's economy will be worse off than if it stayed in the EUImage: picture-alliance/empics/C. Radburn

Bank of England warns of massive unemployment spike

A separate report by the Bank of England that was released later on Wednesday found that unemployment could nearly double and the British economy could shrink by as much as 8 percent within a matter of months in the event of a no-deal Brexit. The Bank of England also warned that the pound could crash by 25 percent if no deal is reached.

The central bank's report, which considered several worst-case scenarios, says that a smoother Brexit could help soften the economic impact on the UK.

 "Our job is not to hope for the best but to prepare for the worst," Bank of England governor Mark Carney said at a press conference, adding that businesses needed to do more to prepare for the fallout. 

"The proportion of businesses who have activated contingency plans remains a fraction of businesses as a whole," he said.

Read more: What happened to Brexit architect David Cameron?

Boris Johnson rejects Brexit projections

May managed to secure support from the 27 other EU leaders for the draft deal on Sunday. But during the summit, EU leaders made clear that London could not secure a better deal than the one they agreed on. Some British lawmakers have threatened to undermine May's deal, saying a better deal is possible.

Former British Foreign Secretary and "hard Brexit" advocate Boris Johnson appeared to reject both the government and Bank of England's reports, labeling the financial experts as part of "the British economic establishment."

"They can't forecast six months out — why should we believe them over 15 years?" he wrote on Twitter.

Greater economic impact

The British government's report is seen as an optimistic assessment by other analysts.

A study published on Monday by the independent National Institute of Economic and Social Research showed May's deal having a stronger negative impact on the economy, citing costlier trade with the EU.

"GDP in the longer term will be around 4 percent lower than it would have been had the UK stayed in the EU," the research institute said in its report. That difference translates to around 1,000 British pounds (€1,130, $1,270) per person annually, according to the report.

Read more: No-deal Brexit fears on minds of German manufacturers

rs, ls/amp (Reuters, AFP, AP)

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