Brexit: shock simulations for no deal scenario
- Leaving the EU without a deal is becoming increasingly likely. Doing so would trigger some sudden shocks, initially through another GBP devaluation. Tariff changes might also squeeze the UK unless offset by constructive actions.- There is worrying potential for nonlinear dynamics through business or household confidence cycles, especially as expectations are already softer than in 2016. If the risk crystallises, the UK likely faces a recession where a 2% fall is typical.
- In the no deal scenario, I expect GDP to grow by over 1% less over the coming few years, with a substantial downside skew to the distribution. Consumer prices would be about 2% higher in 3yrs, though, and Bank rate would probably be floored.
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