UK government, Bank of England to spell out no-deal Brexit risks for economy

 The British government and the Bank of England are set to step up their warnings on Wednesday of a big hit to the economy from a no-deal Brexit, potentially helping Prime Minister Theresa May tackle deep opposition to her plan.
FILE PHOTO - The Bank of England is seen in the financial district during rainy weather in London, Britain, September 23, 2018. REUTERS/Henry Nicholls
Barely four months before Britain is due to leave the European Union, May has failed to get much of her own Conservative Party behind the agreement sealed with EU leaders on Sunday, leaving open the possibility of a no-deal Brexit.
BoE Governor Mark Carney and finance minister Philip Hammond have both previously stressed the importance of a transition period, as included in May’s plan, to ease Britain out of its four-decade membership of the EU.
Carney said last week that the impact of leaving the bloc without a transition could be akin to the 1970s oil crisis for the world’s fifth-biggest economy.
But the prospect remains of a disruptive Brexit, given the scale of opposition to May’s plan in parliament where it faces a vote on Dec. 11.
Finance minister Philip Hammond told BBC television on Wednesday that no Brexit option would be as good for the economy as staying in the EU, but May’s plan “delivers an outcome that is very close to the economic benefits of remaining in”.
The Daily Telegraph said Wednesday’s report from the government would show that in a scenario resembling May’s plan, Britain’s economy would be 1-2 percent smaller in 15 years’ time than if the country remained in the EU. But it would be 7.6 percent smaller if there is no deal.
The forecasts are likely to revive the protests from supporters of a more definitive break from the EU who accused the government of trying to scare voters into remaining in the EU ahead of the 2016 Brexit referendum.
“Politically, it looks like a rehash of Project Fear,” Dominic Raab, who resigned as May’s Brexit minister earlier this month, told the Telegraph. “People expect to be inspired, not scared witless into deferring to the government.”
Hammond dismissed the Project Fear accusation. “I am not trying to scare anybody and I reject the term scare-mongering,” he said.
Brexit supporters say May’s deal will hurt Britain’s economy by making it harder to strike trade deals with faster-growing countries and regions beyond Europe.
Many voters ignored government warnings of a dire outcome for the economy when they decided to leave the EU in the 2016 referendum and it is not clear that lawmakers will be swayed by forecasts about the effects of a no-deal Brexit.
The government is expected to publish on Wednesday morning its assessment of the impact of different Brexit outcomes including a comparison with remaining in the EU.
Then, at 1630 GMT, the BoE will publish its assessment of the implications for interest rates and its oversight of the banking sector arising from different Brexit scenarios.
Trump says iPhone could be hit with new tariffs -report
Carney and other senior officials at the central bank have warned investors not to count on cuts to borrowing costs in the event of a no-deal shock to the economy, saying it could push up inflation sharply as well as damage growth.
Alongside its Brexit analysis, the BoE will publish its regular Financial Stability Report and results of its 2018 stress tests of banks in Britain.
The Financial Conduct Authority, Britain’s financial markets regulator, will publish its own Brexit impact report at 1030 GMT on Thursday, later than an original plan to publish it on Wednesday.The U.K. will suffer a major economic hit over 15 years if Parliament rejects Theresa May’s Brexit deal and the country crashes out of the European Union with no new trade arrangements in place, according to official analysis.
A government report on Wednesday said GDP will be as much as 10.7 percent lower by 2034 if there’s no orderly exit and the supply of workers from the bloc dries up.
The new analysis paints a dire picture of the worst-case scenario but does not provide any detail on the economic impact of the deal May finalized with the EU last week. Instead it provides an analysis based loosely on a plan that’s already been rejected by the bloc.
The omission of May’s agreement is likely to be politically awkward for the government, because the numbers are intended to help inform politicians before they vote on whether to accept or reject the deal May has negotiated. The Bank of England will publish its own analysis later Wednesday.

Brexit Impact

Stopping migration would increase the severity of the hit to the U.K. economy
Source: U.K. government
Note: Figures are midpoints of a range, show GDP impact over 15 years
If Parliament rejects May’s deal, the U.K. will be on course to crash out of the EU on March 29 into a legal limbo, with no special rules in place to regulate trade with the bloc. Backers of May’s deal hope the findings in the analysis will bring wavering politicians -- especial Conservative rebels -- into line.

The analysis is almost certain to provoke a backlash from Tory Brexiteers, who say predictions of economic damage are part of “Project Fear” and insist a no-deal Brexit would leave Britain better off.
May appears to be heading for defeat in the Parliamentary vote on whether or not to back her deal, which will be held on Dec. 11, amid massive opposition from pro-Brexit rebels in her own Conservative Party.
They point to Treasury analysis published before the 2016 referendum that warned of a possible recession within two years and a significant rise in unemployment. As it turned out, unemployment is at a four-decade low and the economy has recorded continued growth, though there is little dispute that investment and consumer spending have been adversely affected by Brexit.
The Treasury has been at pains to make clear that the analysis is a cross-government effort after arch-Brexiteer Boris Johnson privately accused Chancellor Philip Hammond’s department of being “the heart of Remain” and trying to ruin Brexit. May’s office on Tuesday said that the work is an analysis rather than an official forecast.
A risk is that the study provides ammunition to all sides in the Brexit debate, including the campaign for a second referendum to reverse Brexit and those pressing for a Norway-style option.