Brexit Bulletin: The Price of No Deal

(Bloomberg) -- Today in Brexit: Dire warnings about the cost of a no-deal are mounting, but will they be heard by the people who matter most to Theresa May?

U.K. politicians have been told what’s at stake in next month’s Parliamentary vote, after both the government and the Bank of England laid out doomsday scenarios of what a no-deal Brexit could look like.

A government report said GDP will be as much as 10.7 percent lower over 15 years if there’s no orderly exit and the supply of European Union workers dries up, while the BOE went even further, predicting a similar decline in just one-third of the time.

In an eye-catching analysis, the central bank said that a worst-case scenario — disorderly exit — could prompt the steepest economic slump since at least World War II, send property prices plunging almost a third and cause the pound to drop 25 percent. Still, Governor Mark Carney stressed that the bank didn’t assume a chaotic departure would happen and, even if it did, the U.K. financial system could withstand any outcome.

Both analyses were carried out at the request of the U.K. Treasury Committee, which asked for them to be published before next month’s vote. May will hope the stark warnings are enough to change some wavering minds.

Will the forecasts, derisively dubbed “Project Fear 2.0,” make any difference? Almost everyone believes the prime minister will lose the vote.

Indeed, the early indications are that the warnings may fall on deaf ears. Brexiteers, who say the U.K. could thrive after no deal, were quick to dismiss the analysis, with some launching stinging criticisms of Carney — long a polarizing figure in Westminster.

Former cabinet minister Priti Patel said the BOE was “undermining its credibility and independence by giving such prominence to these extreme economic forecasts and scenario,” while Jacob Rees-Mogg launched a personal attack on Carney.

The opposition Labour Party has also warned about the dangers of no deal but seems nonetheless determined to vote down May’s agreement. The party said yesterday that it will table an amendment to the meaningful vote that both seeks to prevent a chaotic exit and reject May’s current deal.

Today’s Must-Reads

• If May can’t win her Brexit vote, what other options are there? Bloomberg’s Kitty Donaldson and Robert Hutton lay out the scenarios.
• U.S. President Donald Trump recently discussed May’s Brexit plan with Nigel Farage, BuzzFeed News reported.
• The Daily Mail reports that Andrea Leadsom, a key cabinet Brexiteer, is prepared to back the deal. Northern Ireland’s biggest manufacturer has also signaled its support.

Brexit in Brief

Confidence Blow | U.K. consumer confidence slumped to the lowest in a year in November. The index, compiled by YouGov and the Centre for Economics and Business Research, remains “notably below” where it was before the 2016 referendum and reflects broad-based concerns about job security and household finances.

Second Vote | Labour’s Shadow Chancellor John McDonnell yesterday raised, for the first time, the idea of a second Brexit referendum with the option to remain in the EU on the ballot paper — a position at odds with party leader Jeremy Corbyn. Theresa May went into more detail than ever before about the prospect of another plebiscite and warned that a second referendum would delay the U.K.’s exit day.

Open Skies | The U.K. has reached an agreement with the U.S. that will allow flights between the two countries to continue as normal after Brexit.

Speedy Process | In its race to deliver a ruling on how the Brexit process could be reversed, the EU’s top court is “reacting, in judicial terms, at the speed of light,” according to one lawyer. The day after a hearing on potentially the most important Brexit case of all, the EU’s Court of Justice said one of its advisers would issue a non-binding opinion on Dec. 4, paving the way for a full ruling from the tribunal in the same month.

Standing Firm | EU member states will maintain their common front if U.K. lawmakers reject a divorce plan carved out by negotiators, according to a party ally of German Chancellor Angela Merkel. Meanwhile, Bundesbank board member Burkhard Balz warned against complacency in the race to secure a deal, saying that “all involved have to consider a failure of exit negotiations as a possible scenario.”

On the Markets | The pound could revisit this year’s high above $1.43 if Brexit uncertainty is removed, as long-term foreign investors are waiting in the wings to scoop up U.K. assets, according to NatWest Markets. The currency was little changed at about $1.2840 in early trading this morning.

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To contact the editor responsible for this story: Lisa Fleisher at lfleisher2@bloomberg.net, Jones Hayden

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