Bank of England warns that a no-deal Brexit would cause pound to crash by 8% 1 year ago

Bank of England warns that a no-deal Brexit would cause pound to crash by 8%

It warned that a no-deal Brexit would cause massive inflation and a possible recession across the UK

The Bank of England warned on Wednesday afternoon that in the event of a no-deal Brexit, the UK can expect its biggest economic slump since 1945. Inflation could soar and the pound would crash if an agreement can't be reached, it predicted.

In a worst-case scenario, the economy may shrink by as much as 8% and housing prices would fall by as much as a third.  That's a 2% increase on the 6% drop experienced during the financial crisis of 2008-09.

Bank of England governor Mark Carney said: "Our job is not to hope for the best but to prepare for the worst.

"We have looked at a potential no-deal, no-transition Brexit and made a series of worst-case assumptions around that.

"What we're telling you is - if there's one thing you take from the avalanche of paper and the numbers and the discussion today - is that the core of the UK's financial system is ready for Brexit whatever form it takes."

These are the key points in what the BoE termed, a "disorderly scenario":

  • GDP drops 8%
  • Sterling falls 25% to below parity with the dollar
  • House prices fall 30%
  • Commercial property prices plunge 48%
  • Unemployment rises to 7.5%
  • Inflation accelerates to 6.5%
  • BOE benchmark rate rises to 5.5% and averages 4% over 3 years
  • Britain goes from net migration to net outflows of people

The BoE's analysis is the latest in a string of warnings about the permutations of a possible no-deal scenario. Despite the EU27 accepting Theresa May's latest deal proposal on Sunday, it is expected that getting parliament to agree will prove a stretch too far for the prime minister.

In the event that the deal is rejected, the only other options will be a renegotiated deal or to leave with no deal. But with a deadline of December 11th, time would be short to come up with something which all sides could agree on.