A Brexit without an agreement would trigger a long recession in the UK, warns S & P | Business

According to the analysis of the international rating agency Standard & Poor's, the UK economy will experience an increase in unemployment and a fall in household income, which would trigger a recession if Theresa May could not reach an agreement to prevent the UK to come out of the European Union next year.

Real estate prices would plummet and inflation would rise to over 5% in a scenario that, according to S & P, had become more likely in recent months, after stalemate with Brussels on a post-Brexit agreement.

In a warning that included a possible downgrading of the UK's credit rating, which would entail an increase in the Treasury's borrowing costs, S & P said it was still waiting to that the two parties to the Brexit negotiations reach an agreement by next March, when the United Kingdom is expected to leave the European Union.

But he warned that the likelihood of a "no agreement" Brexit has increased in recent months to such an extent that it was necessary to warn international investors of potential challenges to come up.

The S & P report said:

• The unemployment rate would rise from 4% to 7.4% in 2020, its lowest level ever before – a rate observed since the end of the financial crisis;

• housing prices would likely fall by 10% over two years;

• household incomes would be £ 2,700 less per year after leaving without an agreement;

• inflation would rise to 4.7% by mid-2019;

• London office prices could fall by 20% over two or three years, as was the case after the 2008 financial crash.

Negotiations with the EU are about to enter in the last few weeks and, although May has declared that an agreement is 95% complete, crucial areas including the fate of the border Northern Ireland, are still unresolved.

The Prime Minister rejected the request of EU negotiator Michel Barnier to maintain an area of ​​security that would keep the Irish border open to trade, even if it meant separating the province from the mainland and creating a border in the country. the sea of ​​Ireland.

The stalemate fueled doubts about the possibility of reaching an agreement on the time it remains before ratification by each party.

Paul Watters, Credit Analyst at S & P Global Ratings, said: "Our basic scenario is that the UK and the European Union will accept and ratify an agreement on Brexit, leading to a transition phase until 2020, followed by a free trade agreement.

"But we think the risk of no deal has grown enough to become a relevant rating consideration. This reflects the inability of the United Kingdom and the European Union to reach an agreement on the issue of the Northern Ireland border, the essential element of the withdrawal treaty. offers. "

Barely a day after the Chancellor said that the failure of the conclusion of an agreement would require him to hold an emergency budget, the analysis of S & P joined A plethora of independent reports predicting that a split of the EU without an agreement will bring a serious blow to the prospects of the British economy. Last month, rival agency Moody's stated that risks to the UK economy have been "dramatically increased" in recent months.

Failure to reach an agreement with Brussels would lead to a sharp fall in the value of the pound sterling, resulting in higher inflation and a real wage squeeze of up to three years, he warned.

Adding to the weight of opinion, the International Monetary Fund and the OECD also said that withdrawing from the Union without an agreement posed a significant risk to the UK, the EU and the global economy.

Brexite leaders are likely to dismiss these warnings as an extension of the Treasury's "fear of the project," which predicts sharp declines in household income, property prices and inflation.

Jacob Rees-Mogg and Iain Duncan Smith told the Chancellor before the budget that it was too gloomy about Britain's economic prospects outside the EU, even though it meant dealing with trade barriers at border crossings. the EU.

Rees-Mogg claimed that the UK economy would be liberated by leaving the EU. Even if he preferred an agreement to secure trade, it would be counterproductive to tie the UK to EU rules for many years.

But the UK's national income has already grown more slowly than expected before the European referendum this year, with GDP growth below its previous trend of 2% to 2.5% and wages barely above the inflation rate of this year. year.

S & P said that leaving the EU without an agreement would worsen the situation, pushing the UK into a moderate recession lasting between one year and 15 months, GDP contracting 1.2 % in 2019 and 1.5% in 2020. After that, the economy would return to growth, he said, although the pace of growth would be moderate.

"By 2021, economic output would still be 5.5% lower than it would have been in a scenario providing for an orderly exit and transition period for the UK," the report says. in his report entitled Countdown for Brexit.

S & P said major street banks would be caught in the downturn, although efforts to strengthen their reserves over the past eight years would provide protection against rising corporate bankruptcies and falling housing prices .

Housing associations would also be under financial pressure due to a decline in home values. At the same time, insurers should foresee a deterioration of the credit rating of the United Kingdom, which would increase their borrowing costs.