A no-deal Brexit would plunge Britain into a recession that would shrink the economy by two per cent by the end of next year, according to the Government’s independent forecasting body.
The Office for Budget Responsibility said increased uncertainty and falling confidence would deter investment and hit trade.
In its latest Fiscal Risks Report the OBR said: “Together, these push the economy into recession, with asset prices and the pound falling sharply.“
Real GDP falls by 2% by the end of 2020 and is 4% below our March forecast by that point.”
Up until now the OBR has been assuming a smooth Brexit when coming up with its forecasts but it said the willingness of both Boris Johnson and Jeremy Hunt to contemplate a no deal departure meant it was stress testing alternative scenarios.
The OBR said leaving without a deal would add £30bn a year to borrowing from 2020-1 onwards and lift the net debt by 12% of GDP by 2023-4.
“A more disruptive or disorderly scenario could hit the public finances much harder” the OBR said.
The OBR used the IMF model of the economy to make its forecasts.