Economy to face severe implications in no-deal Brexit – OBR

Britain’s fiscal watchdog has warned of the “severe implications” for the economy in the event of a no deal Brexit, adding that the vote to quit the EU has already weakened growth.

In its document released alongside Chancellor Philip Hammond’s Budget, the Office for Budget Responsibility (OBR) said that a “disorderly” Brexit would hit house prices, see sterling plummet further and hammer the economy.

“Notwithstanding potential future revisions, the referendum vote to leave the EU appears to have weakened the economy.

“A disorderly one [Brexit] could have severe short-term implications for the economy, the exchange rate, asset prices and the public finances,” the OBR said.

The stark warning comes as time runs out for the Government to reach an exit deal with the EU ahead of Brexit day on March 29.

As it has done in the past, OBR said that it was basing its forecasts without any idea of the outcome of the Brexit negotiations, and is assuming a “relatively smooth exit from the EU next year”.

With this in mind, the OBR marginally upgraded its forecast for GDP growth for 2019 from 1.3% to 1.6%, then 1.4% in 2020 and 2021. It expects 1.5% in 2022 and 1.6% in 2023.

The figures confirm Britain as the slowest growing G7 economy.

Mike Jakeman, senior economist at PwC, said: “Perhaps the most disappointing aspect of the Budget is the economic forecasts made by the OBR, which expect growth to average around 1.5% over the next five years.

“This is not much faster than the 1.3% that we expect for 2018, when the economy is being held back by Brexit-related uncertainty.

“If these forecasts materialise, much greater efforts will have to be made on how to raise the rate of economic growth in the coming years.”

In brighter news for the Chancellor, the OBR said that borrowing this year will be £11.6 billion lower than forecast at the Spring Statement, at 1.2% of GDP.

It is then set to fall from £31.8 billion in 2019/20 to £26.7 billion in 2020-21, £23.8 billion in 2021/22, £20.8 billion in 2022/23 and £19.8 billion in 2023/24.

This has allowed the Chancellor to increase spending on the NHS and a whole host of other giveaways.

Howard Archer, chief economic adviser to the EY ITEM Club, pointed out that the Chancellor has already spent any windfall from the better than expected figures.

He said: “While expected public borrowing has been revised down substantially for the current fiscal year 2018/19, the projections thereafter are only revised down modestly.

“This reflects the fact that, in the words of the OBR, the budget has largely ‘spent the fiscal windfall rather than saving it’.”

The OBR also confirmed that debt peaked in 2016/17 at 85.2% of GDP and is then forecast to fall over the next five years from 83.7% to 74.1% in 2023/24, allowing the Government to meet its target to get debt falling three years early.