A ‘hard Brexit’ could end UK growth in 2022, ratings agency warns

The Canadian credit rating agency, DBRS, painted a worst-case scenario for the U.K. economy following Brexit, claiming growth could grind to a halt by 2022.

Britain is due to leave the European Union in March 2019, before a 21-month transition period kicks in with a full exit due on December 31, 2020.

In a presentation to bankers and asset managers based in the City of London, DBRS said Thursday that the immediate period after 2020 could be difficult years.

The ratings firm claimed that in its adverse scenario, growth would turn negative by around the middle of 2022, with trade starting to shrink around a year earlier.

The Co-Head of Sovereign Ratings at DBRS, Nichola James, said the government's fiscal deficit could also return to 2015 levels.

"It is still smaller than in the aftermath of the financial crisis. It would see the U.K. debt ratio rise to 92 percent (of gross domestic product)," she said.

In comparison, the International Monetary Fund's April forecast estimated that U.K. public debt as a percentage of GDP will fall below 84 percent in 2022.

James predicted that given a "hard Brexit" British consumers would feel the pinch most with disposable income shrinking and unemployment rising to around 5.8 percent by 2022.

The forecast is based on the harshest of exits and assumes that the U.K. leaves Europe with no trade deal, an exit from both the single market and customs union and no "passporting rights." These passporting rights remove regulatory barriers to sell services to EU countries and are seen as particularly crucial to the banking industry.

The DBRS model also assumed a 15 percent depreciation in the value of sterling and a reversal of the interest rate rises that capital markets currently have factored in.

Source: Bloomberg Pro Terminal

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