Bloomberg: BOE warns disorderly Brexit could unleash a savage recession

28 November 2018

The UK could suffer the worst economic slump since at least World War II if Prime Minister Theresa May fails to get her Brexit plan past lawmakers and the country crashes out of the European Union without a deal, warned the Bank of England.

The stark warning from the Bank of England sees the economy shrinking by 8 percent within a year and property prices plunging almost a third under a worst-case scenario. For context, the peak to trough drop in U.K. GDP in the financial crisis was just over 6 percent.

Meanwhile, questions about the credibility of the U.K. would send sterling into a tailspin, forcing the central bank forced to hike interest rates sharply to combat inflation.

Here are the main points in the “disorderly” Brexit scenario:

• GDP drops 8%
• House prices fall 30%
• Commercial property prices plunge 48%
• Sterling falls 25% to below parity with the dollar
• Unemployment rises to 7.5%
• Inflation accelerates to 6.5%
• BOE benchmark rate rises to 5.5% and averages 4% over 3 years
• Britain goes from net migration to net outflows of people

The BOE analysis, carried out in response to a request from a committee of lawmakers, is the latest to highlight the dangers from having no new trade arrangements in place by the time Britain leaves the EU on March 29.

The pound was little changed after the report. Critics of the BOE said the central bank was too gloomy before the 2016 referendum on Brexit, when it warned there was a risk of recession in the months following a vote for Leave. The economy kept growing. [...]

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BoE: EU withdrawal scenarios and monetary and financial stability

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