No-deal Brexit could cause a recession, says the Office for Budget Responsibility
PUBLISHED: 11:37 18 July 2019 | UPDATED: 11:37 18 July 2019
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The independent body for scrutinising government spending has made numerous warnings of the possible effects of a no-deal Brexit, including £30 billion of debt, a crash in house prices, over ten years of stagnant wages, and a recession.
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The Office for Budget Responsibility (OBR) added that despite the claims of both Tory leadership candidates, there's no "war chest" to cover their lavish spending promises.
The OBR also warned that a no-deal Brexit could lead to a 2% fall in real GDP by the end of 2020 and a sharp fall in the pound.
It could also see a period of stagnant wages stretching for 13 years, the OBR's Professor Sir Charles Bean said.
He said: "There's a squeeze on real wages and pretty much real wages are stagnant over the whole of the period.
"I think it implies something like 13 years of stagnant real wages if you take account what has happened since the financial crisis."
House prices would crash by nearly 10% between the start of 2019 and 18 months later, according to the report's assumptions.
That's if a no-deal were to go well. "A more disruptive or disorderly scenario ... could hit the public finances much harder," added the OBR.
Both leadership candidates have spoken of their willingness to take the UK out of the EU without a deal if necessary.
The OBR's statement echoes chancellor of the exchequer Philip Hammond's earlier warning that a no-deal Brexit would wipe out the £26 billion of so-called "fiscal headroom" that both candidates have declared will be available.
Tory leadership hopefuls told spending sprees impossible in the event of a no-deal Brexit
The OBR said that in any scenario, "it must be understood that additional tax cuts or spending increases would push government borrowing and debt up from the levels expected in our forecasts and that there is no war-chest or pot of money set aside that would make them a free lunch".
It said that these uncosted promises "would be likely to increase government borrowing by tens of billions of pounds if implemented".
This will lead to what the OBR delicately called "less ambitious objectives for the management of the public finances".
Reacting to the report, Hammond said the report showed that, even in the "most benign version" of a no-deal exit, there would be a "very significant hit" to the British economy.
"But that most benign version is not the version that is being talked about by prominent Brexiteers," he told Reuters.
"They are talking about a much harder version, which would cause much more disruption to our economy, and the OBR is clear that in that less benign version of no-deal the hit would be much greater, the impact would be much harder, the recession would be bigger.
"So, I greatly fear the impact on our economy and our public finances of the kind of no-deal Brexit that is realistically being discussed now."
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