(Bloomberg) --
The U.K.'s planned exit from the European Union may have already pushed the U.K. into a technical recession, according to the National Institute of Economic and Social Research.
In a gloomy set of new forecasts, Niesr predicted that, even assuming a smooth exit in October, the nation will grow 1% in 2019 and 1% in 2020. There's an around a one-in-four chance that the economy is already shrinking, the think tank said.
The outlook worsens if there is a no-deal Brexit, with Niesr seeing the possibility of a “severe” downturn in the event of a disorderly departure. Even if an “orderly” no deal exit is secured, Niesr says the economy will stagnate next year, with inflation accelerating to 4.1% as the pound drops about 10%.
“However we look at it, there will not be much economic joy in a no-deal Brexit,” said Niesr director Jagjit Chadha.
The pound fell after the report and traded at $1.2464 as of 10:08 a.m. in London.
GDP falls by around 2% following an orderly no-deal Brexit under the Niesr forecasts, but remains flat if there is a policy response. The long-term impact will still be that output is 5% lower “in a permanent way” relative to a soft Brexit or remaining in the U.K., the think tank said.
Niesr sees a 30% chance of the economy shrinking in 2020. In an orderly no-deal Brexit, the BOE will cut the key rate to 0.25% by end of 2019, but then it rebounds sharply to 1.75% by end of 2020. The budget deficit rises to 2.7% of GDP in an orderly no deal, breaking the rule that structural borrowing should be below 2% in 2020-21.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net;Olivia Konotey-Ahulu in London at okonoteyahul@bloomberg.net
To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Andrew Atkinson, Brian Swint
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