A no-deal Brexit could cost the UK economy £30 billion, according to a report by the Office for Budget Responsibility (OBR).
In its most recent ‘Fiscal risks report’ the OBR estimates that UK public borrowing would nearly double to around £60 billion if the country leaves the EU without a deal – up from £29.3 billion if it leaves with a deal.
The UK is currently scheduled to leave the EU on 31 October and the likelihood of a no-deal Brexit scenario has increased after both Conservative party leadership contenders have said they would go ahead with a no-deal Brexit if necessary.
The watchdog used an analysis by the IMF which projects the UK to experience an economic contraction of 2% in 2020 before recovering in 2021.
What does that mean for the Conservative leadership candidates' tax and spending pledges? pic.twitter.com/uwR6n6pacA
— IFS (@TheIFS) July 18, 2019
Under this no-deal Brexit scenario analysed by the OBR, there would be tariffs of 4% imposed on goods traded with the EU.
The OBR said that in this scenario there would be “heightened uncertainty and declining confidence” which would affect investment, while tariffs and trade restrictions with the EU would “weigh on exports”.
The OBR says in its report that the scenario “is not necessarily the most likely outcome” and “is relatively benign compared to some,” but still adds around £30 billion a year to borrowing from 2020-21 onwards and around 12 per cent of GDP to net debt by 2023-24, compared with its March forecast baseline.
The watchdog also warned about a series of uncosted proposals for tax cuts and spending increases made by the remaining Conservative leadership contenders. The watchdog said these proposals, if implemented, may prompt the government to increase borrowing by “tens of billions of pounds”.
Commenting on the OBR report, UK Chancellor of the Exchequer, Philip Hammond said:
“The report that the OBR has published shows that even in the most benign version of a no-deal exit, there would be a very significant hit to the UK economy.
“But that most benign version is not the version that is being talked about by prominent Brexiteers. They are talking about a much harder version that would cause much more disruption.”
John McDonnell, Labour’s shadow chancellor, said:
“We know that a no-deal Brexit would devastate the UK economy and the public finances, and it comes on top of the failed economic approach for the last nine years.
“This warning makes it even more imperative MPs from across Parliament back today’s amendments to try and block the next prime minister from shutting down Parliament to force through a no-deal Brexit.”