No Brexit deal could tip UK into recession, warns Moody's

The UK economy could be tipped into recession if Britain fails to land a deal with the European Union, a credit ratings agency has warned.

Moody's said the outcome would trigger "significant macroeconomic disruption", leading to slower growth as unemployment and inflation rise.

While it claims the possibility of a "no deal" scenario is "substantial", it still expects an agreement to be reached between the UK and the 27-nation bloc.

Moody's managing director Colin Ellis said: "We still think that the EU and the UK will eventually come to an agreement that captures many - but not all - of their current trade arrangements.

"But the probability that negotiations will fail and no agreement will be reached is substantial."

The agency said restrictions on immigration could worsen the skills shortages in certain industries, while the impact of a "no deal" on the aviation industry and ports "could be dramatic".

It found that banks would be "negatively affected by Brexit", but most lenders had drawn up contingency plans to cope with the fallout.

The gloomy outlook comes after Moody's cautioned earlier this month that Britain's creditworthiness would come under pressure from uncertainty surrounding the Brexit negotiations.

The agency said the UK economy is likely to weaken significantly over the rest of 2017.

Its view has been echoed by a range of economists who have downgraded their outlook for UK gross domestic product (GDP).

Professional services firm PwC expects GDP to grow by 1.5% in 2017, revising down a previous estimate of 1.6% growth.

The influential EY ITEM Club has also nudged down its GDP outlook from 1.8% to 1.5% in 2017, saying the UK economy has deteriorated since April.

UK economic growth for the first quarter was confirmed at 0.2% last month, a marked slowdown compared with the 0.7% expansion seen in the final three months of 2016.