No-deal Brexit would tip the UK into a ‘long recession’, warns S&P

House prices would likely fall by 10 per cent in event of Brexit-related recession, ratings agency said

A no-deal Brexit would likely tip the UK into a recession lasting as long as the downturn after the 2008 financial crisis, ratings agency Standard & Poor’s has warned.

S&P said Britain would go into a “moderate” recession lasting four to five quarters if it leaves the EU with no deal. It said this would shrink the economy by 1.2 per cent in 2019 and a further 1.5 per cent in 2020.

“Most of the economic loss of about 5.5 percent (of) GDP over three years compared to our base case would likely be permanent,” S&P said.

Meanwhile, unemployment would rise above 7 per cent from around 4 per cent now and house prices would fall by 10 per cent over two years, the agency said.

The recent recession lasted five quarters and saw the economy shrink by more than 6 per cent. Wages have yet to recover to pre-crisis levels.

“Our base-case scenario is that the UK and the EU will agree and ratify a Brexit deal,” S&P credit analyst Paul Watters said. “But we believe the risk of a no-deal has increased sufficiently to become a relevant rating consideration.”

S&P’s warning comes as Brexit talks remain at a standstill due to a failure to agree on the Irish border.

The ratings agency's predictions contrast dramatically with the government’s forecasts of 1.6 per cent growth next year and 1.4 per cent growth in 2020, which the chancellor announced in his Budget earlier this week.

However, those projections are based on a smooth Brexit, and the Office for Budget Responsibility has warned that its forecasts could be changed rapidly in the event of a chaotic Brexit.

Philip Hammond also said that a no-deal Brexit would result in a new Budget.