A NO-DEAL Brexit on Hallowe’en would trigger a UK recession lasting about four quarters, with economic output declining by 1.5 per cent during 2020, KPMG has forecast.

The accountancy firm projects growth of 1.5% next year in the event of a Brexit deal that “finally resolves some of the uncertainties about the UK’s future trading relationship” with the European Union.

KPMG warned that a no-deal Brexit threatened household sentiment, business investment and cross-border trade, with “policymakers lacking the means to fully mitigate negative impacts”.

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It forecasts a deal could prompt an appreciation of the pound, by as much as 15%, and enable businesses to re-start investment plans,

Yael Selfin, chief economist at KPMG UK, said: “With the Brexit debate poised on a knife-edge, the UK economy is now at a crossroads. It is difficult to think of another time when the UK has been on the verge of two economic outturns that are so different, but the impact of a no-deal Brexit should not be underestimated.”

She added: “Despite headwinds such as the slowing global economy and limited domestic capacity, the UK economy now has the potential to strengthen over the next 12 months. But a no-deal Brexit could put paid to this upside, triggering the UK’s first recession for a decade.”

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Ms Selfin warned: “A no-deal Brexit would be a leap into the unknown for the UK economy and the consequences are therefore unpredictable, but even the foreseeable downside risks from no deal are substantial.”

She said a last-minute Brexit deal would give the UK economy some “breathing space”.

Catherine Burnet, senior partner at KPMG in Scotland, said: “Our latest report is already identifying weaknesses in important sectors for the Scottish economy, including manufacturing and services.

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“The threat of a no-deal Brexit has becoming increasingly real.”