(Bloomberg) --
The OECD warned that a no-deal Brexit would push the U.K. into a recession, send investment and exports plunging and create damaging long-term fallout for the economy.
In a report on Thursday, the Paris-based group said exports would “immediately decline” by 8%, while uncertainty would put the brakes on business spending. While part of the trade shock would be absorbed by the pound, which it forecasts would fall 5% on exit, the economy's performance would be severely hampered, according to its analysis.
The OECD also pointed to longer-term effects that would hold back the economy's potential.
“A gradual reduction in U.K. trade openness would start to adversely affect the overall economic dynamism of the economy, reducing competition, the inflow of new ideas and productivity,” it said.
The warning comes amid a Supreme Court hearing in London, where judges are hearing a case on Prime Minister Boris Johnson's decision to suspend Parliament. If the government loses the case, Johnson could be forced to recall Parliament, giving opponents of a no-deal Brexit more room to try to thwart his promise to leave the European Union with or without a divorce agreement on Oct. 31. The three-day hearing ends Thursday.
Read More: The Political Will to Avert No-Deal Is Ebbing Fast
The OECD said part of the shock to the U.K. economy could be offset by interest-rate cuts and other monetary easing by the Bank of England, while the government could add fiscal stimulus.
A no-deal Brexit would also impact the rest of the EU. Exports from other EU economies to the U.K. are estimated to decline by around 16% as a result of higher trade costs, with the largest effects being felt in Ireland.
To contact the reporters on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net;William Horobin in Paris at whorobin@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Paul Gordon, Jana Randow
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