Wednesday, 8 Feb 2023

Hard Brexit 'would deal growth a severe shock' – Central Bank

A hard Brexit would cause a severe shock to economic growth here which could fall to just 1.5pc this year, the slowest pace since 2012, according to the Central Bank.

However, it stressed this was a “scenario” rather than a forecast, and that its main assumption was still for a negotiated Brexit and growth of 4.4pc this year and 3.3pc in 2020.

The Central Bank comments came amid a wave of downbeat economic news for the eurozone, with a leading indicator flirting with recession.

Even Mario Draghi, head of the European Central Bank, acknowledged the “risks surrounding the euro area growth outlook have moved to the downside”.

Growth of only 1.5pc would barely outpace the rate of population growth and, in the event of this hard Brexit scenario playing out, there would have to be a major rethink of government finances.

“A disorderly no-deal Brexit would have a material negative immediate impact on public finances that would in fact persist over a number of years,” Mark Cassidy, director of economics and statistics at the Central Bank said in a briefing.

“You would in that case need a reassessment regarding what the future expenditure and taxation policies would be,” Mr Cassidy said.

A growth rate of only 1.5pc would just about match the pace of growth of population. It would also hurt the gradually improving debt dynamics, although it would take an outright recession to substantially worsen the ratio of debt to the size of the economy.

It would, however, mean the Government would run a budget deficit this year as its spending plans are based on economic growth of 4.2pc.

A no-deal Brexit would also see consumers paying more for goods at supermarkets, especially food, which would be hit with high tariff rates if Britain was outside the European Union. Companies would also see the price of goods purchased from the UK rise.

Under the main scenario from the Central Bank, in which a Brexit deal is negotiated, the pound would trade at around 88p per euro, but under a no deal, it could fall as much as 10pc.

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