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Bloomberg
The UK’s planned exit from the European Union may have already pushed the UK into a technical recession, according to the National Institute of Economic and Social Research.
In a gloomy set of new forecasts, Niesr predicted that, even assuming a smooth exit in October, the nation will grow 1 percent in 2019 and 1 percent in 2020. There’s an around a one-in-four chance that the economy is already shrinking, the think tank said.
The outlook worsens if there is a no-deal Brexit, with Niesr seeing the possibility of a “severe†downturn in the event of a disorderly departure.
Even if an “orderly†no deal exit is secured, Niesr says the economy will stagnate next year, with inflation accelerating to 4.1 percent as the pound drops about 10 percent.
“However we look at it, there will not be much economic joy in a no-deal Brexit,†said Niesr director Jagjit Chadha.
The pound fell after the report and traded at $1.2464 in London. GDP falls by around 2 percent following an orderly no-deal Brexit under the Niesr forecasts, but remains flat if there is a policy response. The long-term impact will still be that output is 5 percent lower “in a permanent way†relative to a soft Brexit or remaining in the UK, the think tank said.
Niesr sees a 30 percent chance of the economy shrinking in 2020. In an orderly no-deal Brexit, the BOE will cut the key rate to 0.25 percent by end of 2019, but then it rebounds to 1.75 percent by end of 2020.