No-deal Brexit could spark recession, warns OECD

The Organisation for Economic Co-operation and Development (OECD) said a no-deal exit would knock around 2% off UK growth over the next two years, but cautioned the effects would be “stronger still” in a disorderly exit from the EU.

That would likely spark a UK recession - two or more quarters of negative growth in a row - which could cause a “major adverse shock” in the EU and beyond, it said.

In its latest economic outlook, the think tank forecast a “near-term recession” as likely if Britain crashes out with a lack of adequate border infrastructure and a loss of access to EU trade arrangements with third countries.

It that caused serious bottlenecks in integrated cross-border supply chains it could threaten financial market disruption and plummeting confidence, heightening the global impact.

“In such a scenario, the likely near-term recession in the UK would generate sizeable negative spillovers on growth in other countries,” it said.

“Although contingency measures to soften the impact of a no-deal outcome are being taken by both sides, UK-EU separation without an agreement would still be a major adverse shock for Europe and possibly elsewhere in the world, given that the UK is an important trading partner for many countries.”

The warning came as the OECD also slashed its growth forecast for the UK to 0.8% for 2019 and 0.9% for 2020, down from the 1.4% and 1.1% projected respectively in November.

But this is assuming a smooth Brexit transition.

It urged the Bank of England and the European Central Bank to be “ready to intervene” in event of a disruptive exit.