CRASHING out of the EU without a deal could push the UK's economy into recession and increase borrowing by £30 billion a year, the UK Government’s independent forecaster has warned.
The Office for Budget Responsibility quantified the impact on public finances of a no-deal, no-transition Brexit scenario and concluded that debt would rise relative to GDP over the next three years.
But it said the stress-test used in the fiscal risks report was "not the most disruptive one we could have chosen".
READ MORE: MPs vote to thwart any bid to suspend Parliament and force through no-deal Brexit
The financial watchdog suggested a no-deal Brexit could lead to a two per cent fall in real GDP by the end of 2020 and a sharp fall in the pound.
The report came just six days before Boris Johnson or Jeremy Hunt are elected as prime minister with both candidates pledging a no-deal exit if necessary.
The report said wage stagnation would stretch for 13 years since the last financial crisis, house prices would slump by nearly 10 per cent between the start of 2019 and 18 months later and the exchange rate would immediately depreciate by 10 per cent.
In a no-deal scenario, borrowing would be £30bn a year higher from March 2020-21 as the Government would receive less money from income tax, National Insurance contributions and capital taxes.
Those alone would cost £26.5bn a year from 2020/21, the report said, while weak consumer spending would also shave £3bn off finances.
Philip 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 the Chancellor noted how prominent Brexiteers were 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”.
READ MORE: Michel Barnier: Theresa May never threatened no-deal Brexit at EU talks
He added: "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."
John McDonnell for Labour said the report showed the Tories were a "clear and present danger to the economy and the wellbeing of everyone in the UK".
In other developments -
*Michel Barnier, the EU's chief Brexit negotiator, warned the UK would “have to face the consequences" if it left the EU without a deal and told the BBC's Panorama Theresa May and her ministers had “never” suggested they might opt for a no-deal Brexit during negotiations; an assertion flatly denied by Downing St. The PM’s spokesman sarcastically said: “How nice it was to hear from Michel Barnier again and how generous it was for the BBC to give him a platform to share his views with us all. On that specific point the PM was clear both in public and private that the UK was prepared to leave without a deal.”
*Leo Varadkar, Ireland’s Taoiseach, said that if a soft border could be achieved and citizens’ rights protected then he was “willing to compromise” with the incoming new Prime Minister.
*Ursula von der Leyen, the incoming European Commission President, said a no-deal Brexit would have "massively negative consequences" for both the UK and the EU, adding: “We don't want a hard Brexit, it's a bad outcome for both sides."
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