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KPMG: No-deal Brexit could trigger recession in 2020

Accountancy giant KPMG has warned that a no-deal Brexit could precipitate the UK’s first recession in a decade.

Should the government secure an 11th-hour deal, KPMG has predicted GDP growth of 1.5 percent for 2020, but a no-deal could see a decline of 1.5 percent.

 

Consumer spending, which has provided between 60 percent and 80 percent of the country’s economic growth over the last three years, would be significantly decreased in the event of no deal.

 

It’s the latest in a string of downbeat forecasts, with the Bank of England this month reaffirming that crashing out presents “material risks” to the economy, although governor Mark Carney noted that “real progress” had been made in preparing for no deal since November last year.

 

Despite that, the central bank in May cited Brexit uncertainty as the primary cause for a "major slowdown" in lending.

 

Meanwhile, services firm Dun & Bradstreet this week downgraded the UK’s country risk rating and revised its global economic outlook from ‘stable’ to ‘deteriorating’ due to the ongoing risk of no deal.

 

For the UK, this means that – for the first time – it is considered a medium risk country rather than a low risk economy.

 

While both the Bank of England and the government would be likely to offer monetary and fiscal policy support, KPMG said in its analysis, their headroom for action is limited. Household sentiment would also undoubtedly suffer, it said, hitting consumer spending, which has been so important to the UK economy over the past year, while business investment would remain depressed.

 

Yael Selfin, chief economist at KPMG UK, said: “With the Brexit debate poised on a knife-edge, the UK economy is now at a crossroads. It is difficult to think of another time when the UK has been on the verge of two economic outturns that are so different, but the impact of a no-deal Brexit should not be underestimated."

 

“Despite headwinds such as the slowing global economy and limited domestic capacity, the UK economy now has the potential to strengthen over the next 12 months. But a no-deal Brexit could put paid to this upside, triggering the UK’s first recession for a decade.”

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