The Bank of England has warned the pound will crash in the event of a no deal on the Brexit withdrawal agreement.
The British economy could shrink by a massive 8% in a matter of months if the country leaves the EU without a deal next year, according to the Bank’s analysis.
A recession on that scale would be Britain’s deepest in modern history and far beyond the one experienced after the global financial crisis a decade ago.
The apocalyptic outcome, contained in the Bank’s analysis of various EU withdrawal scenarios, would also see unemployment skyrocket.
The unemployment rate would rise 7.5%, inflation would surge to 6.5% while interest rates would rise as high as 5.5%.
House prices are forecast to decline 30%, while commercial property prices are set to fall 48%. The pound would fall by 25% to less than parity against both the US dollar and the euro, according to the bombshell report.
Prime Minister Theresa May is aiming to convince sceptical MPs to back her EU withdrawal agreement she reached with Brussels. Parliament is set to vote on the deal on December 11 and if the deal is not approved, the UK could lose the transition period.
The Bank’s doomsday analysis comes just hours after the Government released its own impact assessment, which found that withdrawal from the EU under Theresa May’s plans could cut the UK’s GDP by up to 3.9% over the next 15 years.
But leaving without a deal could deliver a 9.3% hit to GDP over the same period, according to the analysis which was produced by departments across Whitehall.
And the UK will be poorer in economic terms under any version of Brexit, compared with staying in the EU.
The Bank of England added that in the event of a disruptive Brexit, where there is no change to border trade or financial markets, GDP may fall 3% from its level in the first quarter of 2019.
In this scenario, the unemployment rate will hit 5.75% and inflation rises to 4.25%.
House prices decline 14% and commercial property prices fall 27%. The pound would fall by 15% against the US dollar to 1.10.
However, major British banks have ‘levels of capital and liquidity to withstand even a severe economic shock that could be associated with a disorderly Brexit’, the Bank said.
Britain’s banking system is ‘strong enough to continue to serve UK households and businesses even in the event of a disorderly Brexit’, the Bank said.