THE risk of the UK entering “full-blown recession” has been flagged by the Office for Budget Responsibility, the body set up by former Conservative chancellor George Osborne to provide independent forecasting.

In its fiscal risks report, published yesterday, the OBR says: “The latest data and surveys suggest the economy flatlined at best in the second quarter. Some of this is likely to be a ‘pay-back’ after Brexit-related stock-building in the first quarter. But surveys were particularly weak in June, suggesting that the pace of growth is likely to remain weak. This raises the risk that the economy may be entering a full-blown recession.”

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Business organisations and economist have flagged repeatedly the drag on UK activity from protracted Brexit uncertainty.

The OBR warns short-term cyclical risks “appear to have risen this year”.

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Sterling has been hit hard this week by no-deal Brexit fears, fuelled by remarks from Tory leadership candidates Boris Johnson and Jeremy Hunt. The pound found some modest relief yesterday, with a key vote by MPs to make it more difficult for a future prime minister to force through a no-deal Brexit lending support.

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Mulling the impact of a recession on the UK’s public finances, the OBR flags the challenge of base rates being at only 0.75%.

It says: “The fiscal risks posed by recessions depend on their depth and persistence, the sectors most deeply affected, and the pace at which the economy subsequently recovers. The fiscal risk posed by a cyclical downturn is increased by the proximity of Bank Rate to its effective lower bound and by doubts that some have expressed about the effectiveness of unconventional monetary policy, both of which suggest that the authorities may rely more heavily on fiscal stimulus measures than would previously have been the case.”

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