The UK could be headed for an economic shock in 2019 that could be more severe than the global financial crisis, according to new Brexit estimates from the Bank of England.
The UK’s central bank said that in its worst-case Brexit scenario, the UK economy could shrink by about 8% within a year. That fall would be the worst the country has seen since the 1920s.
In this situation, the UK economy would suffer for years and be about 8% smaller by the end of 2023, compared to the bank’s most recent projections. There are also expectations for inflation to peak at 6.5% and unemployment to peak at 7.5%. House prices could fall by about 30% and interest rates could spike.
The Bank of England (BoE) also expects an exodus of tens of thousands of people leaving the UK each year in the midst of such a downturn.
“Our job is not to hope for the best but to prepare for the worst,” BoE governor Mark Carney told a news conference.
The bank compiled the report at the request of the Treasury select committee, to help members of parliament get a better understanding of how the UK would fare after Brexit under different scenarios.
Prime minister Theresa May has agreed a Brexit deal with the EU, but UK members of parliament still have to vote on the deal to approve it on 11 December. Many MPs have said they’ll vote against the deal, raising the risk that the country could be heading for a no-deal, cliff-edge Brexit.
However, the BoE offered a completely different outlook for the country if politicians are able to secure a planned transition period to the end of 2020 and maintain a close economic partnership with the EU. In this optimistic scenario, Britain’s economy could grow to be as much as 1.75% larger in five years versus recent base-case BoE projections.
Government expectations for a messy Brexit
The BoE report comes just hours after Britain’s government issued a separate report warning that a no-deal Brexit would lead to a dramatic slowdown of the economy over the next 15 years.
The government warned that a no-deal Brexit would leave the UK economy about 9.3% smaller in the next 15 years compared to a scenario where the UK remained in the EU. The analysis considered that under this scenario, there would be tightly restricted flows of European immigrants and higher trading costs with the EU.
The other scenario – roughly in line with May’s Brexit deal for the UK – is also a significant economic downgrade, but the shock would be less severe. The government anticipates the economy would be about 3.9% smaller in 15 years’ time under May’s plan.
With files from Reuters