Bank of England 'preparing for the worst' in case of a no deal Brexit

A no-deal Brexit could cause a bigger economic slump than the 2008 financial crash, the Bank of England has suggested.

Analysis carried out by the central bank for the Treasury Select Committee found that a “disorderly Brexit” could see unemployment soar to 7.5 per cent, inflation rocket to 6.5 per cent and house prices plummet by 30 per cent.

Disruption at UK borders and no new trade deals with other countries would see the UK economy shrink by nearly 8 per cent, the Bank said. During the financial crisis 10 years ago, GDP fell by 6.5 per cent.

Launching the analysis, Bank of England governor Mark Carney said: "These are scenarios not forecasts. They illustrate what could happen not necessarily what is most likely to happen.

But he added: "Taken together the scenarios highlight that the impact of Brexit will depend on the direction, magnitude and speed of the effect of reduced openness of the UK economy.”

Despite the gloomy predictions - which triggered an immediate and furious reaction from Brexiteers - the central Bank concluded that the financial system would not face meltdown even under the most severe form of Brexit.,

It said the UK’s financial sector “is strong enough to continue to serve households and businesses even in the event of a disorderly Brexit”.

But Tory eurosceptics immediately renewed their attack on the central Bank, with Jacob Rees-Mogg saying: “It is unusual for the Bank of England to talk down the pound and shows the Governor's failure to understand his role. He is not there to create panic.”

Meanwhile Treasury Committee member Charlie Elphicke - also part of the European Research Group of Brexiteers - said: "The other day Dr Carney told the Treasury Select Committee that interest rates could go down in a no deal Brexit. Today he says they will rise. The Bank of England is all over the place.”

Carney pushed back at claims the Bank’s warnings represented a return to the so-called ‘Project Fear’ campaign used by the Remain side in the 2016 referendum

He told a press conference designed to launch the analysis: “We’ve been absolutely clear. Our job is not to hope for the best but to prepare for the worst.”

The 88-page analysis comes less than two weeks before MPs vote on Theresa May’s Brexit deal.

The Government’s own analysis today acknowledged that under any Brexit scenario, the UK's GDP will be smaller in 15 years' time than it would have been had the country stayed in the EU.

Shadow Chancellor John McDonnell said: "The Bank has confirmed what other independent reports this week have been telling us: a No Deal Brexit could be even worse than the financial crisis of ten years ago, and the country would be much worse under Theresa May’s deal.

"Instead of ploughing on with this discredited deal the Government should set new priorities that would protect jobs and the economy."

SNP MP Stephen Gethins said: “This devastating analysis shows how bad a No Deal Brexit would be. 
 
“But we can’t accept the myth that we face a choice between a catastrophic No Deal and Theresa May’s Bad Deal. There is no majority in the House of Commons for either of these outcomes – so we need to stop wasting time and start talking about the serious alternatives."