British economy threatened by recession with Brexit

The British economy is at a standstill, estimates the British institute of economic studies NIESR which figures at 25% the probability that it switches in the recession because of a crisis of the Brexit which is prolonged .

The national institute of economic and social research points out that the risks for growth are “heavily downward” while it estimates at 40% the probability of leaving the United Kingdom of the European Union without agreement.

Boris Johnson, favorite to take the lead this week of the Conservative Party and become the next Prime Minister, said he would speed up preparations for an exit without agreement to force the EU to amend the divorce compromise negotiated by Prime Minister Theresa May and disavowed by the British parliament three times.

The NIESR has already estimated that the British economy contracted in the second half. A new quarter of contraction would technically correspond to a recession, the first since the great financial crisis of 2008-2009.

The Office for Budget Responsibility (OBR), an independent body that determines the macroeconomic framework for the budget, said last week that the country could enter a recession.

In a report released on Monday, the NIESR says the outlook for the next few quarters is surrounded by major risks.

“The prospects beyond the month of October, after which the United Kingdom must leave the European Union, are really dark with the risk of a severe contraction in case of a Brexit without agreement and disordered,” warns the institute.

The NIESR lowered its growth forecast for the UK economy to 1.2% in 2019 and 1.1% in 2020 from respectively 1.4% and 1.6% previously.

It attaches a 30% probability to a business contraction scenario in 2020, based on the various Brexit assumptions it holds.

“There will be no tangible growth for a few years after a Brexit without agreement,” said its managing director Jagit Chadha, at a press conference.

Even if an agreement is reached by the next Prime Minister, public finances will suffer, NIESR predicts.

“Some loosening of public finances appears inevitable and we expect the public deficit to reach 2% of GDP with the risk of substantial overruns of the government’s budget targets in case of Brexit without agreement.”

The two contenders for Prime Minister Boris Johnson and rival Jeremy Hunt have pledged to increase public spending, drawing criticism from current finance minister Philip Hammond.

Gary Ivenchuck

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Gary Ivenchuck