S&P warns 'no-deal' #Brexit likely to tip UK into long recession

A no-deal Brexit would be likely to tip Britain into a recession as long as the downturn that followed the global financial crisis, and investors should no longer ignore this danger, credit ratings agency Standard & Poor’s said this week, writes Andy Bruce.

Talks on Britain’s departure from the European Union have stalled over arrangements for the border between the British province of Northern Ireland and the Irish republic if a trading relationship is not agreed in time.

S&P has an “AA” credit rating for Britain — a full step below its top-notch “AAA” rating — but it warned that any failure by London and Brussels to reach a deal would be likely to force it to cut the grade further.

On Monday(29 October) Chancellor Philip Hammond stressed the importance of getting a deal, saying this would dispel uncertainty weighing on businesses and allow him to spend money he is holding back as a reserve.

Britain would experience a “moderate” recession lasting four to five quarters in the event of a no-deal Brexit, S&P predicted. This would shrink the world’s fifth-largest economy by 1.2% in 2019 and by a further 1.5% in 2020.

“Most of the economic loss of about 5.5% (of) GDP over three years compared to our base case would likely be permanent,” S&P said.

Unemployment would rise to above 7% from around 4% now and house prices would be likely to fall by 10% years, S&P said.

In London, office prices could shrink by more than 20 percent over two to three years.

Britain’s economy shrank by more than 6% during its last recession in 2008-09 which lasted five quarters, and growth in wages and productivity has been persistently weak ever since.

Economists polled by Reuters earlier this month assigned a median one-in-four chance that Britain leaves the EU in March with no deal.

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