UK GDP would suffer 10.7% hit in worst case do-deal Brexit

Pro-EU protesters demonstrate outside the Palace of Westminster in central London. (Dinendra Haria / SOPA Images / LightRocket via Getty Images)
Pro-EU protesters demonstrate outside the Palace of Westminster in central London. (Dinendra Haria / SOPA Images / LightRocket via Getty Images)

The UK 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% 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 on Wednesday.

If Parliament rejects May’s deal, the UK 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 government analyzed various Brexit scenarios. The report said:

May’s “Chequers” plan for close ties to the bloc, which the EU rejected, has the lowest impact on GDP The North-East of England will be the region worst hit by a no-deal Brexit. Most voters in the area backed leaving the bloc in the 2016 referendum Reducing net immigration from the EU to the UK would worsen the economic hit from any kind of Brexit.

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 December 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.

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