THE UK would likely be plunged into recession by a no-deal Brexit, with spillover effects felt elsewhere in Europe and possibly further afield, the Organisation for Economic Cooperation and Development has warned.
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Even if a no-deal scenario is avoided, the OECD forecasts annual UK growth will be less than one per cent both this year and in 2020. The Paris-based think-tank has cut its forecast of UK growth this year from the 1.4 per cent it had projected in November to just 0.8% on this scenario. And it has reduced its prediction of UK expansion in 2020 from 1.1% to 0.9%.
However, it warned: “The possibility that a withdrawal agreement will not be reached before the exit date remains a serious downside risk and source of uncertainty in the near term. The current projections for UK GDP growth are conditional on the assumption of a smooth Brexit, with a transition period lasting until the end of 2020.”
The OECD added: “If the United Kingdom and the European Union were to separate without an agreement, the outlook would be significantly weaker.”
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It noted that its analysis suggested that the increase in tariffs between the UK and EU as a result of World Trade Organisation rules coming into effect in the event of a no-deal Brexit would reduce UK gross domestic product by around 2%, relative to its baseline projection, in the next two years.
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The OECD observed that this would add to the “adverse effects on GDP and business investment already seen relative to expectations prior to the vote in 2016”.
It warned: “The effects could be stronger still if a lack of adequate border arrangements with third countries were to cause serious bottlenecks in integrated cross-border supply chains. The costs would also be magnified if this also induced a further decline in business and financial market confidence and disruptions in financial markets.”
The OECD added: “In such a scenario, the likely near-term recession in the United Kingdom would generate sizeable negative spillovers on growth in other countries. Although contingency measures to soften the impact of a no-deal outcome are being taken by both sides, UK-EU separation without an agreement would still be a major adverse shock for Europe and possibly elsewhere in the world, given that the United Kingdom is an important trading partner for many countries.”
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