British economy ‘will contract under no-deal, disorganised Brexit’

The British economy will contract this year under the worst possible outcome of a disorderly no-deal Brexit in March, but could rise 1.8% if something similar to the deal Theresa May stuck with the EU were to be agreed, a leading economics firm has predicted.

Capital Economics in London said “until the Brexit fog clears” its three main forecasts include the UK economy will contract 0.2% under a no-deal disorganised Brexit and grow 1% under an “organised” no-deal outcome.

The British economy will expand 1.8% this year if Ms May were in time to get approval for her deal, and grow “only” 1.5% this year but then surge 2.2% in 2020 if Article 50 were extended because of the “longer period of uncertainty”.

“We’ve been playing this forecasting game a long time and have not before had a situation where upcoming political events could lead to such a wide range of possible near-term outcomes for the economy and the financial markets. As such, it’s not particularly useful to convey things in a central forecast,” Capital Economics said.

“As the fudge and delay scenario has the highest probability, that’s the forecast we will provide when we are required to give a single figure. But even that forecast is really just a guide as there are many flavours of fudge and lengths of delay,” it said.

Capital Economics also forecast that the price of crude oil will fall. It sees the price of the global benchmark Brent falling to $50 a barrel by the end of the year from around $61.40 currently.

Meanwhile, market commentators ascribed a higher probability for an early UK general election. “Jeremy Corbyn feels like he is ready to seize his moment, with the Labour leader calling for a general election in the likely event that Theresa May’s Brexit deal is rejected,” said IG’s Joshua Mahony.

“Tuesday’s contentious vote will force the PM to provide a new alternative within three days of the loss. Should she lose the vote, May would be forced to immediately shift from a mantra of ‘this deal or no deal’, so immediately begin work towards the one thing she purports doesn’t exist,” he said.

Most European stock markets posted gains on Thursday but US stocks were mixed. Faltering talks between the US and China in seeking some sort of truce over their trade wars remained the main point of focus.

The Iseq Overall Index reflected Europe’s mood by closing little changed.

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