A NO-DEAL Brexit would spark a recession as long as the downturn that followed the 2008 global financial crisis, credit ratings agency Standard and Poor's has warned.

While its base case was that London and Brussels would agree a Brexit deal ahead of the March 2019 deadline, the risk of a no-deal had now become large enough to take into consideration in assessing Britain's creditworthiness, S&P said.

Talks on Britain’s departure from the European Union have stalled over how to prevent a hard border between Northern Ireland and the Republic.

The S&P report comes just a day after the Chancellor laid out an optimistic Budget but said he had provided an additional £500m for government departments in order to prepare for a potential no-deal Brexit.

S&P has an AA credit rating for Britain — a full step below its top-notch AAA rating — but it warned that any failure by London and Brussels to reach a deal would be likely to force it to cut the grade further.

Britain would experience a “moderate” recession lasting four to five quarters in the event of a no-deal Brexit, S&P predicted. This would shrink the world’s fifth-largest economy by 1.2 percent in 2019 and by a further 1.5 percent in 2020.

“Most of the economic loss of about 5.5 percent (of) GDP over three years compared to our base case would likely be permanent,” S&P said.

Unemployment would rise to above seven percent from around four percent now and house prices would be likely to fall by 10 percent over two years, S&P said.

The S&P assessment echoes that issued last month by rival credit ratings agency Moody's.

Outlining widespread potential damage for the economy, similar to warnings made ahead of the Brexit vote, the ratings agency said the squeeze on household finances from a spike in inflation would have the knock-on effect of lowering consumer spending.

This would depress economic growth, potentially tipping the country into recession.