Tags: s&p | uk | recession | brexit

S&P: 'No-Deal' Brexit Likely to Tip UK Into Long Recession

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Tuesday, 30 October 2018 02:57 PM

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 on Tuesday.

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.

"Our base-case scenario is that the UK and the EU will agree and ratify a Brexit deal," S&P Global Ratings credit analyst Paul Watters said. "But we believe the risk of a no-deal has increased sufficiently to become a relevant rating consideration."

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 finance minister 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 percent in 2019 and by a further 1.5 percent in 2020.

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

Unemployment would rise to above 7 percent from around 4 percent now and house prices would be likely to fall by 10 percent over two 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 percent 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. 

© 2021 Thomson/Reuters. All rights reserved.

A no-deal Brexit would likely tip Britain into a recession that could last more than a year, credit ratings agency Standard and Poor's said on Tuesday.
s&p, uk, recession, brexit
Tuesday, 30 October 2018 02:57 PM
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