No-deal Brexit followed by recession, a plummeting pound and rising inflation is now the most likely outcome of the government’s strategy for leaving the EU, according to Barclays analysts.
Leaving without a deal looks “increasingly inevitable” and is now the bank’s central scenario, the analysts wrote.
They forecast that the pound will plummet to as low as $1.09 - close to its lowest ever level against the dollar - causing a rise in inflation. In response the Bank of England is likely to cut interest rates and the government will bring forward spending plans in a bid to prop up the economy, the research predicts.
“Delivering Brexit without an extension beyond 31 October is seen by the prime minister as a political imperative in order to prevent a break-up of the Conservative Party and pave the way for its future electoral victory,” the Barclays economists wrote, according to Bloomberg.
“Economic risks are being downplayed while the benefits of mitigating contingency spending and easing are being emphasised.”
Barclays said it could not provide The Independent with a full copy of its economists’ report, stating that it could be given only to clients because of EU rules on the funding of investment firms’ research.
Barclays is the latest institution to warn that the chances of a UK recession have risen.
Earlier this month, the Bank of England put the probability at one in three, assuming the UK leaves the EU with a deal in October.
The BoE is not planning to reveal its forecast for the impact of a chaotic departure until next month. But the central bank did say that in that case GDP growth would be slower.
Moody’s, a credit rating agency which scores how likely a country is to repay its debt, said in July that Britain would fall into recession if it crashed out of the EU, while the government’s spending watchdog has warned the economy may already be entering “a full-blown recession”.
The UK economy contracted unexpectedly in the last quarter and would enter a technical recession if the contraction continues in the current quarter. But the data will not be available until 11 November – after the Brexit deadline.
Additional reporting by Bloomberg