Risks to Britain's Economy of a 'No Deal' Brexit

W460

Britain's economy faces major possible risks in the event of a "no deal" Brexit including recession, a collapse in the pound, surging inflation, and multinationals leaving the UK.

- Growth -

Britain could fall into recession should the country crash out of the European Union on March 29 without a deal, according to economic forecasts.

The Bank of England meanwhile warns UK inflation would rocket as high as 6.5 percent and unemployment soar to 7.5 percent, while the BoE sees a possible 30-percent plunge in house prices. 

- Pound to dive? -

In its worst-case scenario, the BoE predicts a 25-percent collapse in the pound as investors seek safety in other assets. 

A weaker pound tends to boost UK exporters, whose goods and services become cheaper for buyers abroad -- but it can hurt companies that rely heavily on importing parts, such as carmakers. 

Whether London's stock market tumbles following a "no deal" is more unclear, as in recent times it has benefitted from heavy falls in the pound that has lifted share prices in multinationals listed on the capital's benchmark FTSE 100 index. 

However, banking shares are forecast to be hit badly should sterling dive in value, while the BoE has demanded that some lenders increase the amount of assets that can be disposed of quickly.

- Tariffs -

The UK on Wednesday said 87 percent of import tariffs would be scrapped in case of a "no deal", up from 80 percent, but only as a temporary measure lasting one year.

Tariffs for some agricultural products would be retained however to protect British producers, though current rates would be lowered.

The government added that it would not apply customs checks on the border with Ireland.

Changes to tariffs and avoiding border delays could help to keep a cap on price rises fuelled by a plunging pound.

In the auto sector, the government said carmakers reliant on EU supply chains would not face tariffs for imported parts used to make vehicles in Britain.

It comes after Japanese carmakers Honda and Nissan recently decided to slash investment in Britain, partly owing to turmoil created by a possible "no deal" Brexit.

Separately, European planemaker Airbus has warned that thousands of jobs at its UK plants could be threatened if Britain cuts ties with its biggest trade partner without a deal after 46 years of EU membership.

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